Todd Frealy v. Rick Reynolds

867 F.3d 1119, 2017 WL 3482263, 2017 U.S. App. LEXIS 15212

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 15, 2017
• Docket: 12-60068
• Status: Published

Opinion

OPINION

PER CURIAM:

Debtor is the beneficiary of a spendthrift trust. The trust payments he receives come entirely from trust principal. The California Probate Code is unclear as to whether and to what extent his creditors may reach the trust distributions, so we certified the question to the California Supreme Court. Frealy v. Reynolds, 779 F.3d 1028, 1030 (9th Cir. 2015). That court answers us in the attached opinion.

In our order certifying the question, we recounted the facts of this case. Id. at 1031-32. Based on the California Supreme Court opinion, we now hold that a bankruptcy estate is entitled to the full amount of spendthrift trust distributions due to be paid as of the petition date. See Carmack v. Reynolds, 2 Cal.5th 844, 215 Cal.Rptr.3d 749, 391 P.3d 625, 628 (2017); Cal. Prob. Code § 15301(b). But the estate may not access any portion' of that money the beneficiary needs for his support or education, as long as the trust instrument specifies that the funds are for that purpose. See Carmack, 215 Cal.Rptr.3d 749, 391 P.3d at 629; Cal. Prob. Code § 15302. The estate may also reach 25 percent of expected future payments from the spendthrift trust, reduced by the amount the beneficiary needs to support himself and his dependents. See Carmack, 215 Cal. Rptr.3d 749, 391 P.3d at 632; Cal. Prob. Code § 15806.5.

We remand so that the bankruptcy court can apply the teachings of Carmack.

REVERSED and REMANDED.

APPENDIX

215 Cal.Rptr.3d 749

John M. CARMACK, as Trustee, etc., et al., Plaintiffs and Respondents, v. Rick II. REYNOLDS, Defendant; Todd A. Frealy, as Trustee in Bankruptcy, etc., Claimant and Appellant.

S224985

Supreme Court of California.

Filed 3/28/2017

Background: Chapter 7 trustee brought adversary proceeding, seeking to compel turnover of the undistributed principal to which debtor was entitled under spendthrift trust established by his late father. The United States Bankruptcy Court for the Central District of California, Meredith A. Jury, J., granted debtor’s motion for summary judgment, and trastee appealed. The Bankruptcy Appellate Panel (BAP), Uollowell, J., 479 B.U. 67, affirmed, and trustee appealed, and the Court of Appeals, 2017 WL 1131882, certified question to the California Supreme Court a3 to the extent to which a bankruptcy estate may reach a beneficiary’s interest in spendthrift trust.

Holding: The Supreme Court, Liu, J., held that creditor may petition for pending distribution of principal as well as up to 25 percent of future payments.

Question answered.

1. Trusts «=>141

A “spendthrift trust” is a trust that pró-vidos that the beneficiary’s interest cannot be alienated before it is distributed to the beneficiary.

See publication Words and Phrases for other judicial constructions and defini-

2. Trust* «=>152

Creditors of the beneficiary of a spendthrift trust generally cannot reach trust assets while those assets are in the hands of the trustee, even if they have secured a judgment against the boncficiaiy; rather, creditors must wait until the trustee makes distributions to the beneficiary.

3. Trusts @=12

The law permits spendthrift trusts because donors have the right to choose the object of their bounty and to protect their gifts from the donees’ creditors.

4. Statutes <3=1076

Court interpreting a statute seeks to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute.

5. Statutes @=1079

Court interpreting a statute begins by looking to the statutory language.

6. Statutes @=1091,1151

Court interpreting a statute must give the language its usual; ordinary import and accord significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose.

7. Statutes <3=1156

A construction of a statute making soma words surplusage is to be avoided.

8. Statutes @=1153, 1155, 1216(2)

The words of the statute must be construed in context, keeping in mind the statutory purpose, and statutes or statutory sections relating to the same subject must bo harmonized, both internally and with each other, to the extent possible.

9. Statutes <3=1105, 1183, 1242

If the statutory language is suscoptiblo of more than one reasonable interpretation, court must look to additional canons of statutory construction to determine the Legislature’s purpose; both the legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the Jegialative inte.nt.

10. Trusts @=152

The general rule is ihat principal held in a spendthrift trust may nut be touched by creditors until it is paid to the beneficiary. Cal. Prob. Coda § 15301(a).

11. Trusts ®»152

Where trust assets are not protected by a spendthrift provision, the default rule is that creditors may reach those assets. Cal. Civ. Prac. Coda § 709.010(b).

12. Trusts ®»152

After an amount of principal of a spendthrift trust has become due and payable, but has not. yet. been distributed, a creditor can petition to have the trustee pay directly to the creditor a sum up to the full amount of that distribution unless the trust instrument specifies that the distribution is for the beneficiary’s support or education and the beneficiary needs the distribution for those purposes; if no such distribution is pending or if the distribution is not adequate to satisfy a judgment, a general creditor can petition to levy up to 25 percent of the payments expected to bo made to the beneficiary, reduced by the amount other creditors have already obtained and subject to the support needs of the beneficiary and any dependents. Cal. Prob. Code §§ 15301(b), 15308.5, 15307.

See 13 Wilkin, Summary of Cat. Law (10th ed. 2005) Trusts, § 151 et seq,

9th Cir. No. 12-60068, BAP No. CC-11-1438-HPaD, C.D. Cal. Bankr. Nos. 09-14039-MJ, 09-01205-MJ

Finlayson Toffer Roosevelt & Lilly, Jesse S. Finlayson and Matthew E, Lilly, Irvine, for Claimant and Appellant.

Law Offices of David W. Meadows and David W. Meadows, Los Angeles, for Defendant.

Tiio Eroen Law Firm and Robert C. Er-oen for Plaintiffs and Respondents.

Liu, J,

Under the terms of a spendthrift trust established by his parents, defendant Rick H. Reynolds is entitled to receive over a million dollars, ail to be paid out of trust principal. Reynolds filed for bankruptcy before the trust’s first payment, and the bankruptcy trustee seeks to determine what interest the bankruptcy estate has in the trust. The trust is governed by California law, and as the United States Court of Appeals for the Ninth Circuit observed, the relevant statutory provisions, aro “opaque." (Frealy v. Reynolds (9th Cir. 2015) 779 F.3d 1028, 1029 (Frealy).) Probate Code section 15306.5 appears to limit the bankruptcy estate to 25 percent of the henefieiary’R interest; other provisions of the Probate Code suggest no such limitation. The Ninth Circuit asked us whether the Probate Code limits a bankruptcy estate’s access to a spendthrift trust to 26 percent of the beneficiary's interest, where the trust pays the beneficiary entirely out of principal. We hold that the Probate Code does not impose such an absolute limit on a general creditor’s access to the trust. With limited exceptions for distributions explicitly intended or actually required for the beneficiary’s support, a general creditor may reach a sum up to the full amount of any distributions that are currently due and payable to the beneficiary even though they are still in the. trustee’s hands, and separately may reach a sum up to 25 percent of any payments that are anticipated to be made to the beneficiary.

I.

Reynolds’s parents established the Reynolds Family Trust in 2006. The trust contains a spendthrift clause, providing that “no interest in the income or principal of any trust created under this instrument shall be voluntarily or involuntarily anticipated, assigned, encumbered, or subjected to creditor’s [sic] claim or legal process before actual receipt by the beneficiary.” Reynolds’s mother.Patsy died in 2007. Following her death, Reynolds’s father Freddie received all the trust’s distributions until Freddie died in 2009.

The trust provides that at Freddie’s death, Reynolds is entitled to S250,0t)0 fi-om the trust if ho survives Freddie by 30 days. In addition, Reynolds is entitled to receive $100,000 a year for 10 years and then one-third of the remainder. All payments are expected to be made from principal; the trust’s assets are in undeveloped real estate that do not produce income. Those assets are estimated to be worth several million dollars, although their exact value will not be known until the trust assets are liquidated.

The day after his father died, Reynolds filed for voluntary bankruptcy under chapter 7 of (he United States Bankruptcy Code. The trustees of the Reynolds B’amily Trust sought a declaratory judgment on the extent of the bankruptcy trustee’s interest in the trust. The bankruptcy court held that under the California Probate Code, tho bankruptcy trustee standing as a hypothetical lien creditor could reach 26 percent of Reynolds’s interest in the trust.. The bankruptcy appellate panel affirmed. The bankruptcy trustee appealed to the Ninth Circuit, which asked us to clarify if Probate Code section 15S06.5 caps a bankruptcy estate’s access to a spendthrift trust at 26 percent of the beneficiary’s interest where the trust pays entirely fi’om principal. We granted the Ninth Circuit’s request.

II.

L1-3J A spendthrift trust is a trust that provides that the beneficiary’s interest cannot be alienated before it is distributed Lo the beneficiaiy. Creditors of the beneficiary generally cannot reach trust assets while those assets aro in tho hands of tho trustee, oven if they have secured a judgment against the beneficiar}'. Rather, creditors must wait until the trustee makes distributions to the beneficiary. The law permits such trusts because donors have “the right to choose the object of [their] bounty” and to protect their gifts from tho donees’ creditors. (Canfield v. Security-First Nat. Bank (1939) 13 Cal.2d 1, 11, 87 P.2d 830 (Canfield).) Proriding dunurs some measure of control over their gifts encourages donors to make those gifts, to the benefit of the donor, the beneficiaiy, and ultimately the beneficiary’s creditors.

Under the Probate Code, spendthrift provisions are generally valid as to both trust income and trust principal. (Prob. Code, §§ 16300 [trust income], 16301, subd, (a) Llrust principal]; all statutory references are to the Probate Code unless otherwise noted!) Yet creditors need not always wait for distributions to reach the debtor’s hands. Spendthrift provisions are invalid when grantors name themselves beneficiaries. (§ 15304, subd. (a).) When a trust includes a valid spendthrift provision, certain creditors may reach into the trust. Such creditors include those with claims for spousal or child support (§ 16305) and those with restitution judgments (§ 15305.6). In addition, a state or local public entity can reach trust assets when the beneficiary owes money for public support (§ 1530(5, subd. (a)) unless distributions from the trust are required to care for a disabled beneficiary (§ 15306, subd. (b)).

Even genera] creditors, including a bankruptcy trustoo standing as a hypothetical lion creditor, have some recourse under throe provisions: section 16301, subdivision (b) (section 16301(b)), section 15306.5, and section 15307. The question here is how much access lo trusL principal a general creditor has under these provisions.

[4-9] This is a question of statutory construction. We seek to “ascertain the intpnt of the lawmakers so as to effectuate the purpose of the statute.” (Day v. City of Fontana (2001) 25 Cal.4th 268, 272, 105 Cal.Rptr.2d 457, 19 P.3d 1196.) “[W]e begin by looking to the statutory language. [Citation.] We must give ‘the language its usual, ordinary import and accord[] significance, if possible, to every word, phrase and sentence, in pursuance of the legislative purpose. A construction making some words surplusage is to be avoided. Tire words of the statute must be construed in context, keeping in mind the statutory purpose, and Statutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extant possible.’ [Citation.] Tf the statutory language is susceptible of more than one reasonable interpretation, we must look to additional canons of statutory construction to determine the Legislature’s purpose. [Citation.] ‘Both the legislative history of the sLatute and the wider historical circumstances of its enactment may be considered in ascertaining' the legislative intent.’ ” (McCarther v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110, 106 Cal.Rptr.3d 404, 225 P.3d 538.)

In construing the provisions at issue, we are mindful that the Reynolds Family Trust is distinctive in directing all disbursements to bo mado from principal. In other trusts, productive assets produce periodic income payments during the life of the trust, and preserving principal is one of the trustee’s paramount duties. (See 76 Am.Jur.2d (2016) Trusts, § 429.) It is common for trusts to spoeify that tho principal may not be distributed for many years, and liquidating principal may signal that the trust’s purpose has been fulfilled. We are also mindful that this case arises out of a bankruptcy proceeding. Ordinarily, a judgment creditor who is unable to satisfy all of the judgment out of the beneficiary’s trust interest may continue to attempt to collect on the balance of the judgment from whatever other assets the beneficiary may have. Here,.however, the amount Reynolds’s creditors will receive depends on the reach of tho bankruptcy trustees. Any remaining' debts after the bankruptcy process will be extinguished, and any further distributions will be unencumbered. (11 U.S.C. § 541(c)(2).) That spendthrift provisions can work to beneficiaries’ advantage in bankruptcy in this way has long been recognized as a characteristic of such provisions. (See Kest.3d Trusts, § 58, com. a |“An important byproduct of the limited spendthrift protection, however, is the again limited but nevertheless important insulation that may result from a discharge in bankruptcy.”].)

A.

We begin with section 15301(b), which.provides in porLinenl pari; “After .an amount of principal has become due and payable to the beneficiary under the trust instrument, upon petition to the court under Section 709.010 of the Code of Civil Procedure by a judgment creditor, the courL may make an order directing the trustee to satisfy the money judgment out of that principal amount.” Section 709.010 of too Code of Civil Procedure (section 709.010) sets forth toe procedure for a judgment creditor to petition a court to satisfy toe judgment out of toe debtor’s trust interests.

As the Ninth Circuit observed, the statute does not define “due and payable.” (Frealy, supra, 779 F.3d at p. 1033.) The phrase la used in other provisions such as section 15305, which provides that creditors with judgments for child or spousal support may petition a court to satisfy their judgments out of disbursements of either income or principal “as they become duo and payable, presently or in toe futuro.” (§ 16806, subd. (b).) Any disbursement from the trust would appear to bo duo and payable in too sonso tho phrase is used in section 15305. But, as the Ninth Circuit recognized, applying such a reading to section 15301(h) could mean that creditors have “immediate access to all of a beneficiary’s trust principal,” which would eliminate spendthrift protections as to principal entirely. (Frealy, at p. 1083.)

We do not think toe Legislature intended to remove all protections from trust principal immediately after specifying that spendthrift provisions are generally valid as applied to principal, (§ 15301, subd. (a).) Instead, toe Legislature provided toe limiting principle in the introductory clause of section 16301(b); “After an amount of principal has become due and payable....” (Italics added.) This clause indicates that timing is critical; section 15301(b) roaches only those amounts which are presently set to be paid to the beneiicialy, Tiie provision thus requires an amount of principal to 'toa[ve] become” due to toe beneficiary, at which point upon a creditor’s petition toe court may enter an order “directing tho trustee to satisfy too money judgment out of that principal- amount” (§ 15301(b), italics added.) In other words, under this provision creditors may reach the principal already set to be distributed and only up to the extent of that distribution. Such principal has served its trust purposes, and in many (but not all) casos, too distribution may signal that toe trust is ending. Section 16301(b) makes these assets, and these assets only, fair game to creditors.

[10] In this light, section 15301(b) is properly viewed not as an exception to the general spondthrift protections but as a corollary. Tho general rule is that principal held in a spendthrift trust may not be touched by creditors uniil it is paid to tho beneficiary. (§ 15301, subd. (a).) Section 16301(b) adds that once an amount of principal has become due and payable, the court can order toe trustee to pay that amount directly to the beneficiary’s creditors instead. A distribution of principal is reasonably understood to signify that the amount distributed has satisfied its trust purposes. Because the beneficiary’s interost in those assets has effectively vested, tho law no longer has any interest in protect- mg' thorn (oxeopt as provided in section 15302, as explained below).

The legislativo history points tho samo way. The provisions at issue date from the Law Revision Commission’s 1986 proposed revisions to the Probate Code. (See Selected 1986 Trust and Probate Legislation (Sep. 1986) 18 Cal. Law Revision Com. Rep. (1986) pp. 1321- 1479 (1986 Report); Stats. 1986, ch. 820, § 40, as reenacted by Stats 1990, ch. 79, § 14.) The revisions were designed to remedy the patchwork natura of the prior statutory framework while largely continuing existing law. (1986 Report, supra, at pp. 1221-1222, 1302-1306.) Prior California statutes had not made clear that spendthrift provisions were valid as applied to principal, though case law generally suggested they were. (Id. at p. 1302; sea Seymour v. McAvoy (1898) 121 Cal. 438, 444, 53 P. 946; San Diego Trust etc. Bank v. Heustis (1932) 121 Cal. App. 675, 683-684, 10 P.2d 158.) The Commission’s report, to which we givo “substantial weight” (Van Andale v. Hollinger (1968) 68 Cal.2d 245, 249, 66 Cal.Rptr. 20, 437 P.2d 508, overruled on other gruunds in Privette v. Superior Court (1993) 5 Cal.4th 689, 21 Cal. Rptr.2d 72, 854 P.2d 721), notes that the drafters sought to codify the validity of spendthrift provisions as applied to trust principal in section 15801, subdivision (a) (section 16301(a)). (1986 Report, supra, at p. 1302.) Rut the drafters also sought to clarify that once principal was due and payable, creditors could reach it both “in the hands of the trustee and after payment to the beneficiary.” (I d. at pp. 1302-1808.) In other words, spendthrift protections do not apply to section 15301(b) assets.

Importantly, creditors’ ‘access under section 15301(b) is not unlimited. Section 15302 explains that where the trust instrument specifies that a distribution, whether fi’om income or principal, is for tho beneficiary's support or education, the amount the beneficiary actually needs for either purpuse may not be reached by creditors until in the hands of the beneficiary. Section 15302 explicitly provides that it does not apply where creditors Book access under sections 15804 through 15307, but section 16302 does not exclude orders under section 16301(b). Section 16802 thus provides limited continued protection to former trust assets where tho donor specifically intended the distribution to support the beneficiary. This protection encourages donors to provide for beneficiaries’ support and helps to prevent beneficiaries from becoming public charges. (See Canfield, supra, 13 Cal.2d at p. 11, 87 P.2d 830.)

B.

We now turn to sections 15306.5 and 16307. Both provisions aro oxcoptions to tho general validity of spendthrift provisions as applied to trust principal established by section 15301(a). Section 16306.5, subdivision (a) (section 16306.5(a)) provides that any judgment creditor can petition a court to order tho trustee to satisfy tho judgment out of payments to which the boneficiary is entitled. But those orders are limited to "26 percent of the payment that otherwise would be made to, or for the benefit of, the beneficiary” (§ 15306.5, subd. (b)), and they cannot cut into any amount required to support the beneficiary or the beneficiary’s dependents (§ 15306.5, subd. (c)). Section 15807, for its part, provides: “Notwithstanding a restraint on transfer of a beneficiary’s interest in the trust under Section 16300 or 15301, any amount to which the beneficiary ia entitled under the trust instrument ... in excess of tho amount that is or will bo necessary for the education and support of the beneficiary may be applied to the satisfaction of a money judgment against the beneficiary. Upon the judgment creditor’s petition under Section 709.010 of the Code of Civil Procedure, the court may make an order directing the trustee to satisfy all or part of tho judgment out of the beneficiary’s interest in the trust.”

Section 15307 thus appeal's to allow any creditor to access all of a beneficiary’s interest in a spendthrift trust besides what is necessary for the beneficiary’s education and support, whereas section 15306.6 limits creditors to only 25 percent of the same interest. How are these two provisions to be reconciled?

One possibility is that section 15307 is only meant to apply to income, not principal. It is true that toe Law Revision Commission titled this provision “Income in excess of amount for education and support subject to creditors’ claims.” (1986 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 1340; see also Cal. Law Revision Com. com., 54 West’s Ann. Prob. Code (1991 ed.) foil. § 15307, p. 562 (West’s Annotated Code) ["Section 15307 permits an ordinary creditor to reach income under limited circumstances,”]; 18 Willdn, Summary of Cal, Law (10th od. 2005) Trusts, § 155 [“Under the Trust Law, surplus income may be reached to satisfy creditors’ claims.”].) But this title was not part of the official legislative enactments (see Stats. 1986, ch. 820, § 40) and therefore cannot have any bearing on the interpretation of the statute (58 Cal.Jur.3d (2017) Statutes, § 177). Moreover, section 15301(a), which applies only to principal, specifically refers to section 15307, and section 15307 provides that it applies “[n]olwilhslanding ... [section] 15301.” Both references would be unnecessary if section 15807 only applied to income. (See also 1986 Report, supra, at p. 1305 [§ 15307 applies “notwithstanding a restraint on transfer of income or principal in the trust instrument” (italics added)].) In any event, excluding principal from section 15307 would not resolve the tension between sections 15306.5 and 15807 for income. We thus conclude that section 16807 applies to both incomo and principal, as its text plainly soys,

Tho bankruptcy tru3loo suggests that section 15307 serves a different purpose fi'om section 15306.5 by setting a higher bar for creditors than section 15306.5. Under this theory, general creditors have "automatic” access to 25 percent of beneficiarios’ trust interest under section 15306.5, with the burden on the beneficiaries to prove that this should be reduced in light of their support needs and those of their dependents. But in exceptional circumstances, the argument goes, general creditors can turn to section 15307 to roach beyond the 25 percent cap if they can show that exceeding tho cap would be equitable and would not cut into the beneficiaries’ support or education needs.

The bankruptcy trustee’s theory might reflect sensible policy and may find some support in the Law Revision Commission’s unelaborated comment that section 15307 applies “under limited circumstances.” (West’s Ann. Prob. Code, supra, at p. 562.) However, nothing in the statutes suggests that obtaining an order under section 15307 involves any different burden or standard of proof than obtaining an order under any other section. On tho contrary, section 16807 contains the samo reference to section 709.010 of the Code of Civil Procedure as dues section 16306.5(a). Section 709.010, for its part, does not specify any special burdens or procedures for orders under section 15307. The bankruptcy trustee does not cities any authority in support of its theory.

Instead, the more likely answer is that section 16807 reflects a drafting error. Before the 1986 revisions, spendthrift trusts were governed by three key provisions. The first was former section 867 of the Civil Code, which generally permitted spendthrift provisions as applied to income. (Recommendation Proposing the Trust Law (Dec. 1985) 18 Cal. Law Revision Com. Rep. (1985) p. 596 (1985 Report).) The second provision was former section 859 of tho Civil Code, which allowed creditors to reach .the “ ‘surplus’ ” beyond the beneficiary’s education and support in the limited instances where the trust instrument did not specify what to do with accumulating income. (1985 Report, supra, at p. 597, fn. 390, quoting Civ. Code, former § 809; see Estate of Lawrence (1968) 267 Cal.App.2d 77, 82, 72 Cal.Rptr. 851 [trust provision specifying that “ ‘[a]ll unexpended portions of tho net income ... shall be accumulated, added to, and becume a part uf the principal’ ” is valid direction for the accumulation of income].) Moreover, former section 859 said it applied “ ‘as provided in Section 709.010 of the Code of Civil Procedure,’ ” the third key provision governing, spendthrift trusts. (1985 Report, supra, at p. 597, fn. 390.) At the time, former section 709.010 applied by reference the principles of the wage garnishment statute to periodic trust payments, capping payments at 25 percent for general creditors and 50 percent for support creditors. (1985 Report, supra, at pp. 597-599, to. 392, quoting former § 709.010.) So, where former section 859 applied, general creditors were capped at 25 percent of periodic payments to beneficiaries.

Tho Commission’s original proposal reworked thoso provisions into the current framework. Former section 867 of the Civil Codo was the basis for proposed soction 16300. (1985 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 625.) Former soction 869 of tho Civil Code formed the basis for proposod soction 15807, though soction 16807’s acopo is much broader as it seemingly applies to all trust assets and not just undirected accumulations of income. (See 1985 Report, supra, at p. 683.) And although soction 15307, like former section S59, retained a reference to section 709.010 of the Code of Civil Procedure, that reference would have been to a much changed provision, for the proposal also contemplated amending former section 709.010 to remove its references to the wage garnishment statute. (1985 Report, supra, at p. 766.) Some of the removed provisions were given new homes; for example, tho provision giving preferred access to support creditors became proposed section 16805, which also removed tho 60 porcont cap, (1986 Report, supra, at pp. 630-031.) The 25 percent cap that had applied to genera] creditors was not retained anywhere; if the 1985 proposal had been enacted as written, the new law would have dramatically increased the reach of general creditors.

But the revised draft of the Trust Law in 1986, which was ultimately enacted, included for tho first timo soction 16306.5. (1986 Report, su pra, 18 Cal. Law Revision Com. Rep. at p. 1839; see Stats. 1986, ch. 820, § 40.) This now section drew on former section 709.010 and the wage garnishment statute to create an explicit 25 percent cap on trust interests comparable to the cap protecting wages. (1986 Report, supra, at p. 1339.) In the process, the Commission did not meaningfully revise its proposal for section 15307 (compare 1985 Report, supra, 18 Cal. Law Revision Com. Rep. at p. 633, with 1986 Repeat, supra, at p. 1840), nor did tho Commission clarify the rolo of section 15307 in light of section 16306.5. The result is that unlike Civil Code former soction 859, which it purportedly replaced, section 15307 refers to a version of section 709.010 that no longer imposes a cap on general creditors, even as it follows a new provision, section 15306.6, that reestablishes that samo cap. In light of this history, we decline to adopt an interpretation of section 15307 that simply undoes the limitations on genera] creditors that section 15306.6 sets forth in a set of specific and carefully calibrated provisions. We conclude instead that the ultimate enactment of section 16307 without apparent limitations on the roach of general creditors was inadvertent, The Legislature plainly intended general creditors to be limited to 25 percent of distributions from the trust.

C. ,

Tile final issue we must address is whether the 25 percent limitation of section 15300.5 applies to section 16301(b). Section 15306.5, subdivision (f) (section 15306.5(f)) provides: “Subject to subdivision (d), tho aggregate of all orders lor satisfaction of money judgments against the beneficiary's interest in the trust may not exceed 25 percent of the payment that otherwise would be made to, or for the benefit of, the beneficiary.” Unlike section 15306.5(b)’s reference to “[a]n order under this section,” the language of section 15306.5(f)—“all orders for satisfaction of money judgments"—is not limited to orders under section 15306.5. One possibility, therefore, is that section 15306.5(f)'s cap exLends to all orders under any provision of the Probate Coda.

We need not decide the full reach of the 25 percent cap under 15806.5(0 as this case involves only tho scope of sections 15301(b) and 15306,5. Whatever other orders may be subject to section 15306,5(fl’s cap, we conclude that the cap does not apply to orders under section 15801(b). As explained above, section 15306.6 was modeled on the wage garnishment statute then in force (Code Civ. Proc., former § 700.050 et seq., as enacted by Stats. 1982, ch. 1364, § 2) and provides creditors a limited exception to spendthrift protections on the beneficiary's continuing interest in the trust. As the use of the conditional in section 15306.6(f) suggests, “the payment that otherwise would be made to” tho beneficiary is best understood as referring to ongoing payments the beneficiary stands to receive. (Italics added.) The cap thus operates to limit the sum of orders subject to section 15306.6(f)’e cap to 25 porcent of any individual expected distribution.

[11] By contrast, section 16301(b) makes dear that apondthrift protections do not apply to distributions of principal that have, become due and payable. Where trust assets are not protected by a spendthrift provision, the default rule is that creditors may reach thoso assets, (Soe § 709.010, subd. (b),) By crafting a specific rule for this narrow clasH of assets, the Legislature indicated its intent that those assets be treated differently. (See Miller v. Supreme Court, (1999) 21 Cal.4th 888, 896, 89 Cal.Rptr.2d 834, 986 P.2d 170 [" ‘ “A specific provision relating to a particular subject will govern in respect to that subjoct, as against a general provision, although tho latter, standing alono, would ho broad onough to include the subjoct to which the more particular provision relates.” ’ [Citation.]”].) Applying section 16806,5(f)’s cap to section 16801(b) assets would.defeat the Legislature’s specific intent to treat due and payable prindpal "in the hands of the trustee” on par with such principal “after payment to the beneficiary(See 1986 Report, supra, 18 Cal. Law Revision Com. Rep. at pp. 1302-1303.)

[12] In sum, after an amount of principal has become due and payable (but has not yet been distributed), a creditor can petition to have the trustee pay directly to the . creditor a sum up to tho full amount of that distribution (§ 15301(b)) unless the trust instrument specifies that the distribution is for the beneficiary’s support or education and the beneficiary needs the distribution for those purposes (§ 16802). If no such distribution is ponding or if tho distribution is not adoquato to satisfy a judgment, a general creditor can potition to .levy up to 26 percent of the payments expected to be made to the beneficiary, reduced by the amount other creditors have already obtained and subjoct to the support needs of the beneficiary and any dependents. (§ 16806.6.)

As an Illustration, suppose a trust instrument spedfied that a beneficiary was to receive distributions of principal of $10,000 on March 1 of ouch year for 10 years. Suppose further that a gonoral creditor had a money judgment of $50,000 against the beneficiary and that tho trust distributions aro neither specifically intended nor required for the beneficiary's support. On March 1 of the first year, upon the creditor’s petition a court could order the trustee to remit the full distribution of $10,000 for that year to the creditor directly if it has not already been paid to the beneficiary, as wall as $2,500 from each of the nine anticipated payments (n totai of $22,500) as they are paid out. If the creditor wore not otherwise able to satisfy tho remaining $17,500 balance on the judgment, thon on March 1 of tho following years, upon the general creditor’s petition the court could order the trustee to pay directly to the creditor a sum up to the remainder of that year’s principal distribution (87,500), as the court in fits discretion finds appropriate, until the judgment is satisfied.

Conclusion

We conclude that a bankruptcy trustee, standing as a hypothetical judgment creditor, can reach a beneficiary's interest in a trust that pays entirely out of principal in two ways. It may roach up to tho full amount of any distributions of principal that arc, currently due and payable to the beneficiary, unless the trust instrument specifies that those distributions are for tho boneficiaiy’s support or education and the beneficiary needs those distributions for either purpose. Separately, the bankruptcy trustee can reach up to 25 percent of any anticipated payments made to, or for tho benefit of, tho bonofidary, reduced to the extent necessary by the support needs of the beneficiary and any dependents. .

Wo Concur:

Cantil-Sakauye, C.J.

Werdegar, J,

Chin, J.

Corrigan, J.

Cuellar, J.

Kruger, ,T.