PETER McNIFF, United States Bankruptcy Judge.
The Trustee's Motion for Summary Judgment, filed by the plaintiff, Thomas M. Falcey, is before the court. Mr. Falcey seeks judgment on all the claims for relief stated in his complaint. The court held a hearing on January 24, 1998, and having considered the affidavits and documents of record, and the arguments of the parties, finds and concludes as follows:
UNDISPUTED FACTS
1. The plaintiff is the chapter 7 trustee of the estate of the defendant, Florentino R. Romero. Mr. Romero is the trustee of the Florentino R. Romero Family Trust. The other defendants, Toni L. Romero, Traci Romero Lemus, Tina Romero Grygo, and Tami Romero Nebeker, are Mr. Romero's daughters.
2. During 1995, Mr. Romero operated a restaurant in Afton, Wyoming. He borrowed money to operate the business and defaulted. One of the creditors, Mark Hansen, sued Mr. Romero in February, 1996 and got a judgment against him in March 1997.
3. Immediately preceding the lawsuit, Mr. Romero took several actions affecting title to his property. In January, 1996, he borrowed $40,000 and secured the note with a mortgage on the unencumbered home he owned with his wife, Marilyn Romero. From the loan proceeds, Mr. Romero gave $10,000 to each of his defendant daughters. On January 8, 1996, the Romeros conveyed the title to the home to the daughters. The daughters paid no consideration for the transfers.
4. On January 19, 1996, Mr. and Mrs. Romero established the Indenture of Trust of the Florentino R. Romero Family Trust. At the time of the bankruptcy petition, the Romeros were separated. Mr. Romero alleges that Mrs. Romero has no interest in any of the trust property by agreement. No evidence of an actual divorce is before the court.
5. On January 23, 26, and 31, 1996, the daughters and their husbands conveyed title to the home into the trust. On February 5, 1996, the daughters paid Mr. Romero $40,000. Mr. Romero used the $40,000 to retire the mortgage encumbering the home.
6. On January 29, 1996, Mr. Romero and his wife conveyed title to their personal property into the trust with a Bill of Sale. This transaction transferred a car, fifteen weapons, a boat, and a snow machine.
7. The trust paid no consideration for any of the transfers.
8. Under the provisions of the trust document, the "trustor," Mr. Romero, has the right, with the approval of at least three of his daughters, to remove property from the trust. The trust is revocable and amendable at Mr. Romero's discretion with the approval of three of the daughters. However, Mr. Romero has sole and complete discretion over the use and distribution of the trust principal and net income. For example, he could convert the assets to cash and pay that cash to himself.
9. The trust contains a standard anti-alienation clause that the beneficiaries' interests are not subject to the claims of their creditors. Until his death, Mr. Romero is the sole trustee and sole beneficiary.
10. The trust was settled in and is governed by the law of Wyoming.
11. On January 5, 1996, Mr. Romero transferred unimproved real property to his nephew, Dan Johnson, by warranty deed. The land was encumbered by a mortgage to the seller. Mr. Romero states he had an oral agreement with Mr. Johnson that Mr. Johnson would pay for the land. Mr. Johnson did not pay for the land. Mr. Romero later satisfied the mortgage, leaving the land unencumbered.
12. On October 10, 1996, Mr. Romero executed a warranty deed conveying the land to his daughter, Tina Grygo. He executed the conveyance under a power of attorney designation on behalf of Mr. Johnson. Mrs. Grygo now has title to the land.
13. Tina Grygo paid no consideration for the land conveyance.
14. On May 22, 1997, Mr. Romero filed his voluntary chapter 7 petition.
CONCLUSIONS OF LAW
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157 and 1334. This is a core proceeding within the definition of 28 U.S.C. § 157(b)(2)(E) and (H). This motion is brought under Fed.R.Civ.P. 56, made applicable in adversary proceedings by Fed.R.Bankr.P. 7056.
Summary judgment is appropriate when there is no disputed issue of material fact and the moving party is entitled to judgment as a matter of law. In re Baum, 22 F.3d 1014, 1016 (10th Cir. 1994). Under Rule 56(c), summary judgment is proper only if the evidence, reviewed in the light most favorable to the party opposing the motion, demonstrates no genuine issue of any material fact. Frandsen v. Westinghouse Corp., 46 F.3d 975, 976 (10th Cir. 1995). A material fact is one that could affect the outcome of the suit, and a genuine issue is one where the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Farthing v. City of Shawnee, Kan., 39 F.3d 1131, 1134 (10th Cir. 1994).
Mr. Falcey requests summary judgment under two theories regarding the trust property: that Mr. Romero's interest in the self-settled Romero Family trust is property of the chapter 7 estate; and that the transfers to the trust are avoidable fraudulent conveyances. He also seeks summary judgment imposing a constructive trust on the unimproved land and a judgment that Mr. Romero is not entitled to claim an exemptions in any property recovered by the trustee by operation of § 522(g).
Because the court concludes that Mr. Falcey is entitled to summary judgment that the debtor's interest in the trust is property of the estate, the court need not address whether the transfers into the trust were fraudulent conveyances. The court also concludes that issues of fact preclude judgment with regard to the land.
The Trust
Mr. Falcey seeks a judgment that Mr. Romero's interest in the trust is property of the estate under § 541(c) which provides:
(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law —
(A) that restricts or conditions transfer of such interest by the debtor;
(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
Under § 541(a) virtually all property in which a debtor has a legal or equitable interest at the time of the bankruptcy petition is property of the estate. In re Walker, 959 F.2d 894, 897 (10th Cir. 1992). However, anti-alienability provisions enforceable under applicable non-bankruptcy law exclude property from the estate by operation of § 541(c). Thus, a debtor's beneficial interest in a trust is excluded from the estate if it is subject to transfer restrictions enforceable under state law, i.e., valid spendthrift trust provisions. In re Newman, 903 F.2d 1150, 1152 (7th Cir. 1990).
In Wyoming, a trust by which "alienation of the settlor's beneficial interest is restrained, is invalid as to creditors." Spratt v. Security Bank of Buffalo, Wyo., 654 P.2d 130, 136 (Wyo. 1982). Wyoming applies the nearly universal rule that in a self-settled trust, a spendthrift clause is void as to the settlor's creditors. In re Pancratz, 175 B.R. 85, 91 (D.Wyo. 1994).
Mr. Romero's trust is a self-settled trust wherein the settlor/trustee maintains complete control over the trust property for his own benefit. The trust is not irrevocable. Under Wyoming law, the spendthrift provision is invalid and Mr. Romero's beneficial interest is subject to the claims of his creditors. See, also, In re Baum, 22 F.3d at 1017.
The facts of this case are similar to the circumstances in In re B. V. Brooks, 1998 W.L. 35018 (Bankr.D.Conn. 1998). In that case, the debtor transferred property to his spouse, who then transferred the property into the debtor's trust. The court, citing the Restatement (Second) of Trusts § 156, Comment f (1959), stated that a beneficiary need not have conveyed the property into the trust in order to find that the trust was self-settled. Other determinative factors include whether the property is part of the settlor's taxable estate or the settlor paid the original consideration for the property. Id. at *3.
Mr. Romero argues that he was not insolvent at the time the trust was created and the property was transferred, and that the trust was created for legitimate estate planning purposes. Perhaps, but those defenses are irrelevant.
The court concludes that the spendthrift provision of the trust is invalid as to the estate's creditors, the exception to estate property found in § 541(c) is inapplicable, and Mr. Romero's interest in the trust is property of his chapter 7 estate as a matter of law.
The Unimproved Land
The trustee urges the court to impose a constructive trust over the land which was transferred to Mr. Johnson and then conveyed to Mrs. Grygo. The defendants admit that Mr. Johnson did not pay any consideration for the initial transfer of the land to him, and that Mrs. Grygo did not pay any consideration for the second transfer of the property to her. The defendants do contest that the transfers were made with fraudulent intent. They also argue that although made for no consideration, Mr. Romero was solvent at the time.
A constructive trust is imposed by courts in equity to prevent unjust enrichment when property is acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest. The legal owner becomes a trustee of the property for the transferor's benefit. Thomasi v. Koch, 660 P.2d 806, 810 (Wyo. 1983).
The equitable lien or constructive trust protects the transferor who transferred the property with absolute confidence that the transferee will act in his best interest. Id. The trustee must prove that a constructive trust is warranted by clear and convincing evidence.
In this case, the circumstances are different than those of Thomasi v. Koch. Mr. Romero insists that the transfer to Mrs. Grygo was for estate planning purposes because he had heart problems. This is a perfectly legitimate objective. Mrs. Grygo implies that she too thought that her father retained the beneficial interest until his death, at which time the property would be hers.
The Tenth Circuit recently addressed similar issues in In re Taylor, 133 F.3d 1336 (10th Cir. 1998). The court realized that transfers for estate planning purposes should not always be reversed under a constructive trust theory. When one's motive is to provide for one's children, other factors influence the court's decision to create an equitable remedy. The Tenth Circuit looked to those factors, i.e., fraudulent intent and insolvency, when evaluating the validity of the transfer in Taylor. Id. at 1342-1343.
Similarly, in the case of In re Stoffregen, 206 B.R. 939, 944 (Bankr.E.D.Wis. 1997), the court recognized that when estate planning is a stated motive, other possible motives such as avoiding creditors, are relevant. When the transfers in question are to family members at the time the transferor is in ill health, the court must look closely to the proof of fraud or insolvency of the debtor to establish whether the transfer is legitimate.
The obvious reason for these considerations is that the conduct which gives rise to the equitable remedy of a constructive trust is usually on the part of the transferee. There is no evidence of culpable conduct on Mrs. Grygo's part. The person who the trustee argues is culpable is the debtor for whose benefit a constructive trust would issue. The remedy seems inapplicable to the circumstances here.
The court concludes that Mr. Falcey has not established that it is "highly probable," even with the defendants' admissions of no consideration, that Mrs. Grygo has no interest in the property. Mr. Falcey must establish that both parties to the transaction had motives which support the imposition of a constructive trust.
Genuine issues of fact remain under the other two theories of recovery. The evidence before the court is contradictory. Regarding constructive fraud, Mr. Falcey has not argued in this motion that Mr. Romero was insolvent at the time of the transfers.
As to actual fraud, intent is critical. Although the circumstances surrounding the transfer reflect traditional badges of fraud, other factors are also present. For example, Mr. Johnson purchased other property from Mr. Romero and followed through on the contract. At the time of the conveyance to Mrs. Grygo, Mr. Romero did have heart problems, substantiating his stated motive of the need to plan for his death. At this point, Mr. Romero's fraudulent intent is unproved.
Additionally, if the land or its value is recovered for the estate, that recovery is subject to Mr. Johnson's interests, if any, which cannot be adjudicated here.
Validity of Mr. Romero's Exemptions
Mr. Falcey objects to any claim of exemption from the estate in the event Mr. Falcey recovers property. The matter is premature. Mr. Romero has not claimed an exemption in any of the property in question. In the event he amends Schedule C, Mr. Falcey may file an objection as a contested matter at that time.
CONCLUSION
Accordingly, it is ORDERED that the plaintiff's motion for summary judgment on his first and second claims for relief is granted; and further
ORDERED that the plaintiff's motion for summary judgment on his third claim for relief is denied; and finally
ORDERED that the plaintiff's objection to claims of exemption is denied without prejudice.