USCA1 Opinion

UNITED STATES COURT OF APPEALS

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________

No. 95-1631

PAUL F. MARKHAM, TRUSTEE,

Plaintiff,

v.

CLAIRE M. FAY, AS TRUSTEE OF HIGHLAND AVENUE NURSING HOME

TRUST, PARKER HILL NURSING HOME TRUST,
AND GREEN PASTURES NURSING HOME TRUST,

Defendant, Appellant,

and

UNITED STATES,

Defendant, Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert B. Collings, U.S. Magistrate Judge]

_____________________
____________________

Before

Torruella, Chief Judge,

___________
Bownes, Senior Circuit Judge,
____________________
and Stahl, Circuit Judge.
_____________
____________________

Richard H. Gens for appellant.

_______________
Annette M. Wietecha, Attorney,
____________________

with whom Donald K. Stern,

________________

United States Attorney, Of Counsel, Loretta C. Argrett, Assistant

__________________

Attorney General, Gary R. Allen, Attorney, and Jonathan S. Cohen,

_____________
_________________

Attorney, Tax Division, United States Department of Justice, were

on brief for appellee.

____________________

February 7, 1996
____________________

BOWNES, Senior Circuit Judge.

BOWNES, Senior Circuit Judge.
____________________

Fay

("Fay"), in

her capacity

as

Appellant

trustee of

Claire M.

three trusts,

appeals the magistrate judge's ruling that a federal tax lien

upon her individual property extends to the entire assets

the trusts.

Fay

because the

her own

contends that

property of the

under Massachusetts

the magistrate

trusts would not

law.

of

judge erred

be considered

Fay also raises

federal

statutory and constitutional issues, contending that Appellee

Internal Revenue Service ("IRS")

upon

the

trust property

statutory notice

trusts,

and

and

also

indispensable parties

because it

limitations

that

does not have a valid

the

failed to

requirements

trust

who were not joined

lien

comply with

as

to

beneficiaries

the

were

and were deprived

of property without

was

no

statutory

due process of law.

or

constitutional

We

hold that there

error

and

that

the

magistrate judge correctly held that the lien attached to the

entire property of the Green Pastures and Parker Hill Nursing

Home Trusts.

holding

We also hold that the magistrate judge erred in

that the lien attached to the entire property of the

Highland Avenue Nursing Home Trust.

Thus, we affirm in part,

reverse in part, and remand for a new judgment.

I.

BACKGROUND AND PROCEDURAL HISTORY

_________________________________

In

extensive

a published opinion,

the magistrate judge made

findings of fact, Markham v. Fay, 884 F. Supp. 594

______________

(D. Mass. 1995), none of which are in dispute in this appeal.

-22

We recount those necessary

to provide context to

the issues

before us.

During the 1960s and

number of legal entities

owning and

of

1970s, Fay and others created

for the purpose,

operating nursing homes in

those entities -- the Green

inter alia, of
_____ ____

Massachusetts.

Three

Pastures Nursing Home Trust,

the Parker Hill

Nursing

Home

Nursing Home Trust

Trust --

created the trusts in

and the Highland

are involved

in

Avenue

this appeal.

1974, conveying to herself as

Fay

trustee

of each trust the nursing home for which the trust was named.

fourth

entity,

corporation"),

Regina

Nursing

was incorporated

in

Home,

1961.

Inc.

("the

Fay became

president and sole stockholder in 1967, then assigned all

her

stock to

during the

her

1970s.

Nursing Home.

sister Theresa

The

Dzialo (Dzialo)

corporation owned the

its

of

sometime

Chester Manor

At no time were the trusts and the corporation

organized or operated as one entity, and each owned different

property.

In

June of 1976, Fay, as trustee of the trusts and

president

of the

corporation, sold

Pastures, Highland Avenue and

trusts owned

mortgages

by Louis

and

bankruptcy in

trusts and

other

1978.

the Parker

Chester Manor Nursing Homes to

Almeida ("Almeida"), in

consideration.

By then,

the corporation

Hill, Green

Almeida

the only assets

were the mortgages,

-33

exchange for

filed

for

owned by the

and Almeida

had

defaulted on them.

court

awarded the

On October 2,

trusts

and the

1990, the bankruptcy

corporation, as

secured

creditors, the proceeds from the bankruptcy trustee's sale of

the nursing homes, amounting to $67,809.89.

On

October 10,

1990, the

IRS filed

a derivative

claim with the bankruptcy court "for the purpose of obtaining

any dividend which may become payable to Claire M. Fay."

IRS's claim

In

1979, in

was premised on Fay's

view

of

Almeida's

assessed Fay individually as

U.S.C.

The

individual tax liability.

bankruptcy,

the

IRS

had

a "responsible person" under 26

6671 and 6672 for income and F.I.C.A. taxes Almeida

failed to pay for the nursing homes' employees during the tax

years 1976 through 1978.1

On October 31, 1979, IRS

filed a

notice

of

federal

tax

lien for

individually, and refiled it

the

IRS sued

judgment

entered

against

on January 27, 1986.

Fay individually,

was

$200,213.45

against

and on

her

In 1984,

December

in

the

Fay

30, 1990,

amount

of

$699,142.21, including penalties and interest.

On

October

31, 1990,

the

IRS

delivered to

bankruptcy trustee (but

not to the corporation) a

levy on the corporation

as alter ego and/or nominee

The IRS did not

file any liens, lawsuits or

the

notice of

of Fay.

notices thereof

____________________

1.

Fay apparently

continued to be involved

in managing the

nursing homes after selling them to Almeida.

The efficacy of

the assessment against her is not before us in this appeal.

-44

against

the trusts,

Fay as

trustee of

the trusts,

or the

beneficiaries of the trusts.

On February 12, 1991, Paul F. Markham

the bankruptcy trustee who

the

nursing

homes,

Massachusetts Superior

("Markham"),

held the proceeds of the

filed

an

interpleader

sale of

action

Court seeking a determination

in

of the

rights

of

the

Markham named

of the

various

claimants to

the

interpled

as defendants Fay individually

trusts, the corporation,

attorneys seeking

trusts and the

payment for

fund.

and as trustee

the United States,

and two

litigating the claims

of the

corporation before the bankruptcy court.

On

March 14, 1991, the IRS removed the case to the United States

District

1993,

Court for the District of Massachusetts.

the court

denied

summary judgment

to

On May 5,

the IRS,

the

corporation and the trusts, granted summary judgment in favor

of the

attorneys (awarding them $16,970),

the case to the magistrate

and then referred

judge for all purposes

including

trial and entry of judgment.

After a bench trial, the magistrate judge issued an

opinion,

holding that

proceeds of the sale

the IRS

Avenue Nursing

herself

such significant

884 F.

Homes because

powers

be considered her own

Supp. at 607,

entitled to

of the Parker Hill, Green

Highland

assets would

was

609.

in the

the entire

Pastures and

Fay had

trusts that

their

under Massachusetts law.

The magistrate judge

-55

reserved to

also held

that

the government had failed

to prove that

the trusts or

the corporation were Fay's alter egos, and found that the IRS

had not established that Fay used the trusts for a fraudulent

purpose

or

Judgment

for her

own individual

benefit.

Id.
__

at 604.

was entered for the IRS in the amount of $27,732.85

plus 55% of the accumulated interest, and for the corporation

in

the

amount of

interest.2

Fay,

$23,107.04

in her

plus 45%

capacity as

of

the accumulated

trustee of

the three

trusts, then filed this appeal.

Before we

proceed to the legal

issues, we clarify

the present status of the trusts and the proceeds of the sale

of

the nursing homes.

Since

1978, the trusts have not held

any property

and have

other than the mortgages on

not engaged

in any

transaction or

than pursuing their claims against

and

defending

the

bankruptcy

dormant, the trusts continue

terminated by

business other

Almeida's bankrupt estate

court's

award.

to exist.

the bankruptcy

the

the nursing homes,

Although

They were in

trustee's sale of

bankruptcy

court

no way

the nursing

homes.

Rather,

awarded

proceeds

to the trusts in satisfaction of the mortgages.

refer to

the sale proceeds

as trust property,

the

sale

We

although not

____________________

2.

After

the attorneys

stage, $50,839.89 plus

were paid

at the

accumulated interest

summary judgment
remained.

The

parties stipulated at trial that the fund was attributable as

follows:

$23,107.04

Highland

Avenue Nursing

Hill

Nursing

Home

to

the

corporation;

Home Trust;

Trust;

and $440.10

$16,046.63

$11,246.12
to

Green

to

to Parker
Pastures

Nursing Home Trust.

-66

yet

paid

to the

trusts, because

the proceeds

trust property unless paid to the IRS.

will become

-77

II.

STATUTORY AND CONSTITUTIONAL ISSUES

___________________________________

Fay first

valid

contends that

lien against

comply with

the trust

statutory

requirements

as to

notice

the

the IRS does

not have

property because

it did

and

limitations

trusts.

statute

It

of

gave

no

notice

not

of

assessment as to the trust property in 1979, did not join the

trusts,

Fay

as

trustee,

or

the

trust

beneficiaries

as

defendants in its 1984 suit against Fay individually, and did

not

proceed

demand,

against

lien or levy.

IRS sought

in the

trust property

them

by

separate

suit,

assessment,

Second, Fay contends that because the

interpleader action to

collect from

the

as such, the beneficiaries were indispensable

parties

who were required to

be joined in

their own right.

Finally, Fay argues that because the beneficiaries were given

no

opportunity to

appear

interpleader action, the

and defend

their

rights in

magistrate judge's ruling

the

deprived

them of property without due process of law.

The IRS

property

responds first that

from which it seeks

to collect and

limitations requirements were

IRS concedes that if

trusts

or

transferees,

action

the

directly

it had sought to hold

have

against

assessment of the tax.

Fay's own

all notice and

met with respect to her.

beneficiaries

it would

it is only

personally

had to

them

the trustee, the

liable

institute a

within six

The

years

as

Fay's

collection

from

the

See United States v. Updike, 281 U.S.

___ _______________________

-88

489, 493 (1930); 26 U.S.C.

6901.

that

the taxes

would

it sought

be

Notice and

to collect

considered

limitations

trusts therefore

Fay's

own

The IRS, however, asserts

out of

under

requirements

were not implicated.

property that

Massachusetts

with

respect

As to

to

law.

the

Fay's joinder

and

due

process

bankruptcy trustee

action,

she

has

arguments,

the

IRS

responds that

named Fay as trustee

represented

the

the

in the interpleader

interests

of

the

beneficiaries throughout this litigation, and at no time have

the beneficiaries as such

sought to intervene.

Furthermore,

the IRS argues, the beneficiaries' exclusive remedy is a suit

for wrongful

which

is now

levy brought pursuant

time-barred because no

within nine months

U.S.C.

such suit

from the date of levy, as

7426(a),

was brought

required by 26

6532(c).

Although

resolve

to 26 U.S.C.

these

the

issues,3

matters of federal law.

magistrate judge

we

will

review

did

not precisely

them de
__

novo
____

as

Horton Dairy, Inc. v. United States,

___________________________________

986

F.2d 286, 290 (8th Cir. 1993).

First, we must untangle

____________________

3.

The

magistrate

judge stated

at

the

analysis that the separate structures

beginning of

his

of the trusts could be

disregarded for notice and statute of limitations purposes if

they

were Fay's

were not
trusts

Fay's alter egos,

were

distinct
would

alter egos, but

required to

theory that

went on to

hold that they

and never addressed

be

treated

prevailed --

be considered Fay's own under

whether the

separately under

that the

the

trust property

Massachusetts law.

The

magistrate judge did not mention Fay's joinder or due process

arguments.

-99

the web of

in

statutory and procedural requirements

this phase

assessment of

which

of

to "give notice to

U.S.C.

property,

person."

particular

arises

in

"upon

real

U.S.C.

piece

makes

it has sixty

each person liable

a lien

whether

26

the IRS

or

6321.

of property

favor

all

of

personal,

days in

thereof."

and

belonging

Whether and

constitutes

26

and the

the United

property

an

for the unpaid

Once notice and demand are given

unpaid,

automatically

Once

amount and demanding payment

6303(a).

goes

appeal.

a taxpayer's liability,

tax, stating the

tax

Fay's

implicated

States

rights

to

to

such

to what extent

property of

the

taxpayer to which a federal tax lien can attach is a question

of state law.

(1960).

and

Aquilino v. United States, 363 U.S.

__________________________

The

lien arises at the time the

continues until

unenforceable

the liability

by lapse of time.

may collect the

tax by levy or

assessment is made

is satisfied

26

509, 512

U.S.C.

or becomes

6322.

The IRS

by bringing a proceeding

in

court, which according to the pre-1990 version of 26 U.S.C.

6502

applicable in this case, must be done "within six years

after

(1988).

the

assessment of

A lien

expiration

collection,

of

26 U.S.C.

6502(a)

becomes unenforceable by lapse of

time upon

the

but if

the tax."4

six-year

the

statute

of

limitations

for

government brings

suit within

six

____________________

4.

The statute was amended in 1990 to extend the limitations

period to ten years.

26 U.S.C.

6502(a) (1994).

-1010

years from assessment and

receives a judgment in

the life of the lien is extended indefinitely.

its favor,

See Rodriguez
___ _________

v. Escambron Dev. Corp., 740 F.2d 92, 94 n.3 (1st Cir. 1984).
_______________________

There

against Fay

is no

dispute that the

individually in

1979, that

demand to her within sixty days, that

assessment arose against

property,

that the IRS

lien

it gave

a tax

notice and

a lien dating from the

all of Fay's property and rights to

timely filed a

Fay individually in 1984,

IRS assessed

civil action against

that it refiled the notice

of tax

in 1986, and that it obtained a judgment in December of

1990 that extended

the life

indefinitely.

That

of the lien

brings us

on Fay's

to the

property

IRS's collection

efforts beginning with the derivative claim in the bankruptcy

court in

October of

action below.

or

by a

1990 and leading

As stated above, the

proceeding in

court.

to the

interpleader

IRS may collect by levy

26 U.S.C.

6502(a).

The

briefs

are unhelpful

took.

The

IRS

(at best)

indicates

property,

but

the

IRS

notifying

the taxpayer in

such levy.

26 U.S.C.

levy

the

upon

constitute

inter
_____

alia,
____

different

the

it

which route

levied

collect

by

writing of its

levy

as

Fay's

on the

and

the

on

levy

the IRS

the

trust

only

after

intention to make

6331(a), (b), (d)(1).

trusts

property.

that

may

corporation

notice of

as to

alter

The notice of

ego

trust property

corporation

did

not

because,

each

held

Because it has never notified Fay of an

-1111

intention

to levy on the

trust property, there

has been no

levy.

Other

than

by levy,

the

IRS

can collect

by

proceeding in court, either by bringing an action pursuant to

26 U.S.C.

7403, or by simply suing for the amount owed and

then exercising "the usual rights of a judgment

enforce any judgment obtained.

U.S. 677,

682 (1983).

neither party contends

creditor" to

United States v. Rodgers, 461

________________________

This is not a section 7403 action and

that it

is.5

The

IRS is

therefore

exercising

the

usual rights

of

a judgment

creditor.

It

asserts (inconsistently with its indication that it levied on

the

trust

property)

Procedure Act of

governs

the

that

the

1990 (FDCPA),

interpleader

contend otherwise.

Federal

28 U.S.C.

proceedings,

Fay's tax

Debt

Collection

3001, et
__

and

indebtedness is

Fay

does

a "debt"

defined in the

FDCPA because it is

"an amount owing

United

on account

. .

U.S.C.

States

3002(3)(B).

of [an]

Except to

the

seq.,
___

as

to the

. assessment."

extent that

not

28

another

federal law specifies procedures for recovering on a judgment

for a debt arising under such law, the FDCPA is the exclusive

civil procedure for the government to recover a judgment on a

____________________

5.

The government has the right in a section 7403 proceeding

to

seek a

delinquent

forced sale
taxpayer has

others also have an

privilege
Rodgers,
_______

U.S.

an

entire property

interest

even

the

at 697,

express terms
and

is

not

in

where

interest in the property.

arises from
461

of the

which a
innocent

This special

of section
available to

7403,
the

government here.

-1212

debt.

28 U.S.C.

the debt arose)

3001(a),

(b).

The tax

code (from which

does specify procedures for recovering

on a

judgment by levy,

in a federal

26 U.S.C.

6331, and by

district court to

7403, but does not

filing an action

enforce a lien, 26

U.S.C.

contain specific procedures for otherwise

recovering on a judgment, for example by filing

a derivative

claim in bankruptcy court and litigating against the taxpayer

in a

resulting

interpleader action,

as the

IRS did

Thus, the procedures of the FDCPA appropriately control.

the magistrate judge was correct that

each trust would be

law, then the

could

seek

notifying

language of

Fay

I f

the entire property of

considered Fay's own under Massachusetts

IRS had a valid lien on

to

here.

enforce

in

in 1979,

the

section 6303(a)

the

IRS

that property that it

interpleader

action.

complied with

requiring notice and

the

By

plain

demand on

the only "person

statute

liable."

The IRS also

complied with

the

of limitations by suing Fay in 1984 within six years

of the tax assessment in 1979 as required by section 6502(a).

The

so

judgment obtained in 1990 extended the life of the lien,

that

the IRS's

interpleader

action was

failed to establish

individually

homes,

was

effort to

and the

enforce

timely.

a nexus

Fay argues

between the taxes

proceeds of

but the IRS does

the judgment

the sale

not contend that

incurred by the trusts

such that the

-1313

in the

that the

IRS

owed by

her

of the

nursing

the tax liability

judgment could be

satisfied directly from the entire

of whether it belonged to

lien upon

that

Fay.

Fay's individual

it may

enforce out

trust property regardless

Rather, the IRS has

property and rights

of any

trust property

a valid

to property

that under

Massachusetts law belongs to Fay, even though the claim arose

independently of the trusts.

As

parties

to whether the beneficiaries were indispensable

who were deprived of

an opportunity to

be heard in

their

own right,

we begin

that the beneficiaries'

levy under 26 U.S.C.

that

remedy

Rodgers
_______

only

by rejecting the

only remedy is

7426(a).

when

by Fed. R. Civ.

(Federal Rules

That

wrongful

by

levy,

has not done.

were required to be joined

P. 19. See 28
___

U.S.C.

Procedure apply in

3003(f)

FDCPA actions).

rule provides in relevant part that a person subject to

service

of process

court of subject

party

of Civil

proceeds

695-96, which it

Rather, whether the beneficiaries

is governed

a suit for

Third parties are limited to

the government

461 U.S. at 682-83,

IRS's argument

and whose

joinder will not

matter jurisdiction "shall

in the action if

. . . the person

deprive the

be joined as

claims an interest

relating to the subject of the action and is so situated that

the disposition of the action in the person's absence may (i)

as a practical

matter impair or impede

the person's ability

-1414

to protect

that interest .

. .

."6

Courts applying

this

rule generally have held that beneficiaries are indispensable

parties in actions

from

the trust

1495-96

like this to collect a tax

corpus, see
___

(11th Cir.

or other debt

Tick v. Cohen, 787

______________

F.2d 1490,

1986); United States v. Fried, 183

________________________

F.

Supp. 371, 373 (E.D.N.Y. 1960), and actions analogous to this

seeking

to terminate a trust.

See Hansen v. Peoples Bank,

___ _______________________

594 F.2d 1149 (7th Cir. 1979).

"The general rule is, that in

suits respecting trust-property, brought either by or against

the trustees, the cestuis

_______

are necessary parties."

(1875);

Cir.

que trust as well as

___ _____

Carey v. Brown, 92
_______________

see also Stevens v. Loomis, 334 F.2d

___ ____ __________________

1964).

An

exception

to the

general

the trustees

U.S. 171,

172

775, 777 (1st

rule, however,

exists

when

the

interests fully

trustee

represents

and without conflict.

Moore's Federal Practice

the

3A

beneficiaries'

James W.

Moore,

19.08 at 175-76 (2d ed. 1985).

The bankruptcy trustee joined Fay both individually

and as trustee in the interpleader action.

Fay had the

duty

as trustee under the three declarations of trust to represent

the beneficiaries' interests in any lawsuit.

While, at least

____________________

6.

In

contrast, in an action

property
7403,

to payment of tax

"[a]ll

persons .

property

involved" are

U.S.C.

7403(b);

Inc., 898 F.2d 493,

____
mandatory);

. .

to enforce a

lien or subject

brought pursuant to
claiming

required

to be

26 U.S.C.

any interest
made

in the

parties.

26

United States v. Big Value Supermarkets,

_________________________________________
496 (6th Cir. 1990) (section

United States v. Overman,

_________________________

(9th Cir. 1970) (same).

424 F.2d

7403(b) is
1142, 1146

-1515

on

the surface,

the

fact that

the

trustee in

this

case

incurred the debt that the trust property might be reached to

pay indicates a potential conflict

beneficiaries,

zealously and

all

signs

are

without conflict.

between Fay and the other

that

Fay

Fay

represented

has not

them

asserted any

claim

to the

course

of

fund

in her

individual right

this litigation,

capacity as trustee.

but

Moreover,

beneficiaries of the trust,

throughout the

has appeared

as settlor and

only

in her

one of

the

Fay's interest in protecting the

trust property would seem to be at least as strong as that of

the other beneficiaries.

The beneficiaries as such

did not

seek to intervene at any point when the district court or the

magistrate judge

own

right.

could have joined them as

This

is not to

say that the

parties in their

issue was waived,

Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 559 (5th

____________________________________

Cir. 1985) (failure

to raise

below the issue

of whether

party should have been joined does not result in waiver), but

it does

indicate that the beneficiaries did not perceive any

failure on Fay's

part to

represent their

interests at

the

time.

And

between her

on appeal,

Fay fails

interests and those of

to describe

any conflict

the other beneficiaries,

any way in which their interests were not represented, or any

way in

they

which the litigation

had been

joined.

As

might have gone

will be seen,

differently if

resolution of the

core issue in the case -- whether the property of

-1616

any of the

trusts would be considered

-- depended

factually

Fay's own under Massachusetts law

the

trust

instruments, documents that were before the magistrate

judge

and are before

us.

may

better

have been

only on

Although

the

language of

in an abundance of

for the

beneficiaries

to have

been

joined, as

it turned

interests.

We therefore hold that the beneficiaries were not

indispensable parties.

argument that

the

without

process

due

magistrate

judge

out, Fay faithfully

caution it

The same considerations defeat Fay's

beneficiaries were

was

represented their

of

law.

right,

deprived of their own property.

deprived of

Moreover,

the

property

assuming

beneficiaries

were

the

not

III.

LAW?
____

WAS THE TRUST PROPERTY FAY'S OWN UNDER MASSACHUSETTS

_______________________________________________________

When

the

IRS assessed

taxes

owed

by Fay

"responsible person" in 1979, a federal tax lien

all

property

and

rights

personal, belonging to" Fay.

tax

code "creates

consequences,

state law."

no

to

property,

26 U.S.C.

property rights

federally defined,

to

as

arose "upon

whether

real

6321, 6322.

but merely

rights

The

attaches

created

United States v. Bess, 357 U.S. 51, 55

______________________

or

under

(1958).

Whether and to what extent Fay's powers, interests and rights

in the trusts

constitute property to

which the federal

lien could attach is a question of state law.

U.S. at 512.

tax

Aquilino, 363
________

-1717

We review de
__

instruments

property that

law.

gave Fay

novo the issue

____

such extensive

it was in

of whether the

powers over

effect her own

Salve Regina College v. Russell,

_________________________________

trust

the trust

under Massachusetts

499 U.S.

225, 231

(1991); Losacco v. F.D. Rich Constr. Co., 992 F.2d

_________________________________

(1st

Cir. 1993).

In

doing so,

we will

382, 384

take care

not to

extend state law beyond its well-marked boundaries in an area

such

as trust law

that is quintessentially

the province of

state courts.

Initially, we clarify that

Fay,

it was not improper for

the settlor of the trusts, to designate herself as both

sole trustee and one of the trusts' beneficiaries.

Under the

common

among the

law of

beneficiaries

973

F.2d

(Second)

Scott

trusts, "trustees may

of a trust."

968,

971

of Trusts

on Trusts,

(1st

be included

Mahoney v. Board of Trustees,

______________________________

Cir.

1992),

citing

Restatement

99, 115 (1959); William F. Fratcher, 2

99.2, 115 (4th

ed. 1987).

And a sole

trustee who

is also the

settlor may be

one of two

or more

beneficiaries. Sullivan v. Burkin, 460 N.E.2d 572, 575 (Mass.

__________________

1984); Ascher v. Cohen, 131 N.E.2d 198, 199-200 (Mass. 1956);

_______________

Restatement (Second) of Trusts

100.

When a trustee is also a beneficiary, she holds the

legal title to the entire trust property in trust

the

with

beneficiaries (including

it for the benefit

herself), has

a duty

of the beneficiaries,

-1818

for all of

to deal

and does not

hold

to

legal title to any of

use as she

legal

and

pleases.

equitable

the trust property free of trust

There

is no partial

interests.

Restatement

Trusts

99

cmt. b; 2

Scott on Trusts

that

creditor

generally

trustee/beneficiary's

interest in

with a spendthrift provision.

merger of the

99.3.

cannot

a trust,

(Second) of

It follows

reach

such as

these,

Restatement (Second) of Trusts

99 cmt. b.

When

a beneficiary is

also the

settlor, however,

she cannot keep property beyond the reach of her creditors by

placing it in

a spendthrift trust for her own

benefit.

See
___

Merchants Nat'l Bank v. Morrissey, 109 N.E.2d 821, 823 (Mass.

_________________________________

1953);

Forbes v. Snow, 140 N.E.

_______________

settlor/beneficiary's

creditors

418, 419 (Mass.

therefore

can

1923).

reach

"the

maximum amount which the trustee under the terms of the trust

could

pay to

(Second)

him or

156(2), quoted
______

138 (Mass. 1954).

interest

apply for

of

his benefit."

in Ware v. Gulda, 117

__ _____________

This, of course,

any other

beneficiary

settlor/beneficiary's creditors.

As

a matter

property or

of

federal law,

rights to

Restatement

N.E.2d 137,

does not mean that

may be

the

reached

by the

Scott on Trusts

114.

tax lien

property belonging to

extends

only to

the delinquent

taxpayer,

parties.

this

case

and not

to property

Rodgers, 461 U.S. at

_______

attaches to

the

belonging to

690.

innocent third

Whether the tax lien in

entire property

of

each trust

-1919

depends on whether the

trust instruments give Fay

the power

to eliminate the other beneficiaries' interests.

A.

The Parker Hill and Green Pastures Nursing

__________________________________________
Home Trusts
___________

On January 21, 1974, Fay created the Green Pastures

and

Parker Hill

trust

Nursing Home

declarations of

whose terms were identical except for the names of the

trusts and the identity

sole

Trusts under

trustee

and

of their assets.

conveyed

to

herself

Fay

as

named herself

trustee

the

respective nursing homes.

Fay named herself and her two sons

as

each trust,

the beneficiaries

until

of

the trusts terminate.7

the remainder beneficiary of

the

trust

property

and

all in

equal shares,

She named her sister Dzialo as

each trust -- upon termination,

undistributed

immediately vest in her free of trust.

income

were

to

The

entitled

magistrate

to

reach that

represents the

Nursing

judge

part

ruled

of

that

the interpled

assets of the Green Pastures

Home Trusts,

based

the

on Fay's

IRS

fund

was

that

and Parker Hill

"copious" rights

and

powers as settlor, sole trustee and one of

the beneficiaries

of

settlor to alter,

the trusts, and her

reserved right as

____________________

7.

The

trusts

following:
declared;
appointment
property.

are

twenty
Fay's

to

terminate at

years

election

of a
Although

from

the

to

guardian of

the

date the

terminate;
her or

twenty years have

our point

her

-2020

were

death;

or

of her

now passed since

Fay

trusts' continuing

of reference is

litigation began.

of the

trusts

a conservator

created the trusts in 1974, we assume the

existence because

earliest

the date

this

amend or revoke

the trusts, although

those powers or

otherwise used the trusts for

benefit.

Fay has not

her exclusive

884 F. Supp. at 607.

Traditionally, Massachusetts has given

to

inter

property

powers

exercised

vivos

trusts,

regarding their

rather than that of

reserved to him or

assets

the settlor in

her, at least

full effect

as

trust

spite of broad

while those powers

remain

unexercised.

N.E.2d 113,

1009,

See
___

National Shawmut Bank v. Joy, 53

______________________________

122-25 (Mass. 1944); Guthrie v. Canty, 53 N.E.2d

________________

1010 (Mass. 1944).

But another line of cases has more

recently emerged from the Massachusetts Court of Appeals.

State Street Bank and Trust Co. v. Reiser,

___________________________________________

(Mass.

holding

App.

Ct.

that a

1979),

and

income

remained

broke

with

settlor/beneficiary's creditors

trust assets upon his

amend or revoke

the court

389 N.E.2d

during

his

unexercised at

though

the remainder

vested

upon

his

could reach

the

time of

beneficiaries'

death

powers to

the disposition of

lifetime, even

because

though

his

there

principal

the

powers

death, and

rights

was

in

768

tradition,

death where he had reserved

and to direct

In

the

no

even

trust

further

possibility that he could

71.

exercise his powers.

Id.
__

at 770-

The court emphasized that the settlor's powers gave him

the right

until his

death to

interests in the trust.

destroy all

Id. at 771.
__

-2121

other beneficial

Similarly,

in

ITT Commercial Finance Corp. v.

___________________________________

Stockdale,
_________

521 N.E.2d 417

relied

Reiser
______

on

settlor's creditor

where the

to

(Mass. App. Ct.

hold

(in

could reach

settlor was

the

1988), the court

alternative)

trust assets upon

sole trustee,

his children

life and remainder beneficiaries, and he had a

to amend

and

revoke

and a

specific

beneficiaries until his death.

power

Id. at 417-18.
__

that

his death

were the

general power

to

substitute

As in Reiser,
______

his creditors could reach the trust assets even though he had

not

exercised

interests

his

powers

had vested.

747, 749 (Mass. App.

See
___

and

the

other

beneficiaries'

also Wolfe v. Wolfe, 486 N.E.2d

____ _______________

Ct. 1985) (5/6 of trust

property could

be

reached to

power

to

withdraw

satisfy

alimony judgment

alter, amend

5/6 of

and

revoke

where settlor

and absolute

principal; remainder

had

right

to

beneficiaries' rights

were not vested).

The touchstone

the

trust instrument

eliminate

the

as

of the analysis,

a whole

interests of

settlor, Fay reserved

gives

all others

then, is

Fay the

in

whether

power

the trust.

to herself the right "to

to

As

alter, amend

and

revoke this Trust, in whole or in part, and to terminate

the

same."

include

the

These

unrestricted and

right

to

substitute

or

unconditional

powers

strike

other

beneficiaries, Leahy v. Old Colony Trust Co., 93

_____________________________

out

N.E.2d 238,

239 (Mass. 1950), to vary the income or principal paid to the

-2222

beneficiaries while the trust continues,

including the power

not to pay them at all, State Street Trust Co. v. Crocker, 28

_________________________________

N.E.2d 5

(Mass. 1940), and

Sevinor v. Stahler, 84
__________________

to completely revoke

the trust.

N.E.2d 447, 448-49 (Mass. 1949).

If

Fay revoked the trust, or amended it to make herself the sole

beneficiary,

the legal

title and

equitable interest

merge and thereby terminate the trust.

180

would

See Atkins v. Atkins,

___ ________________

N.E.2d 613, 614 (Mass. 1932); Langley v. Conlan, 98 N.E.

_________________

1064,

1066 (Mass.

1912).

As

Fay

points out,

the

trust

property would not vest free of trust in her if she caused it

to

terminate, but in her sister Dzialo.

Fay, however, could

amend the trust to delete that provision.

As

trustee, Fay

control

the trust

powers,

but

Broad

powers

effective

has

property.

we attribute

The IRS

them no

are typically

way to manage

broad powers

to manage

makes much

and

of these

significance whatsoever.

conferred

trust property.

on a

trustee

Trustees

as an

who are

also

to

beneficiaries, "like trustees generally, have the power

do acts that are

'necessary or appropriate

the purposes of the trust and are not

of the trust.'"

powers

forbidden by the terms

Mahoney, 973 F.2d at 971, citing Restatement

_______

(Second) of Trusts

context,

186.

As we have held in the

settlor/trustee's administrative

cannot be

to carry out

equated

with ownership.

-2323

estate tax

and management

See
___

Old Colony
__________

Trust Co. v. United States,

___________________________

423 F.2d 601,

602-03 (1st Cir.

1970).

As trustee,

trust"

and

Fay is to

hold the nursing

for the "general purposes" of the trusts, and to hold

accumulate the principal and net income "for the use and

benefit

of said

beneficiaries."

following that direction provides:

The sentence

much

and discretion

or all

or

to pay

any part

of

immediately

"However, anything to the

contrary herein notwithstanding, the Trustee

power

homes "in

over to said

the trust

shall have full

beneficiaries so

property,

whether

principal or net income, as she shall deem proper."

We think

that this sentence, in the context of the trust instrument as

whole, gives

Fay the

power to

pay income

and/or invade

principal for her benefit alone.

We

recognize,

as

we

have

before,

that

under

Massachusetts law, a trustee is restricted in the exercise of

even

broad discretionary powers

by the

terms of

the trust

viewed as a whole, and by the trustee's fiduciary duty to use

his or her best

judgment in good faith.

and Trust v. United States, 634 F.2d

____________________________

State Street Bank

__________________

5, 9

(1st Cir. 1980)

(citations omitted); see also Fine v. Cohen, 623 N.E.2d 1134,

___ ____ _____________

1139

(Mass. App. Ct. 1993);

Dana v. Gring,
_____________

371 N.E.2d 755,

760-61 (Mass. 1977); Woodberry v. Bunker, 268 N.E.2d 841, 843

___________________

(Mass. 1971);

504,

Old Colony Trust Co. v. Sillman, 223

_________________________________

506 (Mass.

1967).

In particular,

a trustee

N.E.2d

may not

-2424

exercise

broad discretionary

power

to

shift beneficial

interests in

a trust.

Fine, 623 N.E.2d at 1139; Boston Safe

____
___________

Deposit and Trust Co. v. Stone, 203 N.E.2d

________________________________

1965).

A Massachusetts

court necessarily would

trustee's conduct, if challenged, in

duties

at

623 N.E.2d

County Nat'l Bank, 199

__________________

found that the trust

at

1139.

N.E.2d 200

evaluate a

light of the powers and

set forth in the trust instrument.

552; Fine,
____

547, 552 (Mass.

Stone, 203 N.E.2d

_____

In Copp v. Worcester
__________________

(Mass. 1964),

the court

instrument's direction that the trustee

invade principal for the life beneficiary was enforceable and

not unrestricted because it was to

be in a stated amount and

only as necessary for her reasonable support and maintenance.

Id. at
__

202-03.

In

cases interpreting

trustee powers

for

federal estate tax purposes, ascertainable standards limiting

trustee discretion have been found where the trust instrument

directed

principal and/or

specific

purpose

expressed an

(such

intent

to

beneficiaries, or both.

income

as

to be

education

preserve

distributed for

and

principal

support),

for

or

remainder

See State Street Bank and Trust v.

___ _______________________________

United States, 634 F.2d at 9; Old Colony Trust Co. v. United

_____________
_______________________________

States,
______

317 F.

Supp.

618, 622

(D.

Mass. 1970);Dana,
____

371

N.E.2d at 761; Woodberry, 268 N.E.2d at 843; Worcester County

_________
________________

National Bank v. King, 268

_______________________

Sillman, 223 N.E.2d at 507-08.

_______

N.E.2d 838,

840 (Mass.

1971);

-2525

If Fay exercised her

trust

property for herself,

discretion so as to

take the

thereby depleting or destroying

the others' interests, we doubt

that a court could determine

that

she had violated her fiduciary duty in carrying out the

terms

of the trusts because the trust instruments as a whole

do

not

limit

her

discretion

beneficiaries' interests

or

in income

define

the

and principal.

other

They do

not give Fay's sons the right to any particular proportion of

the trust income or principal, the right to receive it at any

particular

their

receive

time

Under

it free of trust

interest could

to pay all of

these

when the trust

to receive

it for

circumstances, we

property for her own

terminates.

amount to nothing

the income and

sister would have had little or

trust

the right

support or any other definite purpose, or the right to

sister's remainder

decided

or interval,

think

Fay's sons

and

no recourse if she took

the

benefit.

that

We

recognize that Fay

but what is dispositive for

is

trust

the

if Fay

principal to herself.

has not done so,

whether

Fay's

instrument

contained

these purposes

ascertainable

limits on her power to pay income or invade principal for her

benefit alone that

the other beneficiaries could

enforce any rights of their own. Moreover,

that

the other

vested.

beneficiaries'

Although

that

we

interests in

apparently makes

rely on to

do not

think

the trust

no difference

are

in

light of Reiser and Stockdale, it does mean that their rights

______
_________

-2626

are inchoate at the

present time.

Under

Massachusetts law,

whether a right in a trust has vested depends on "whether, in

substance,

the

constitute an

holder."

interest

interest or

sufficiently

right

which has

established

to

accrued to

its

New England Merchants Nat'l Bank v. Groswold, 444

______________________________________________

N.E.2d 359, 363 (Mass.

only to total

1983).

That an interest

or partial defeat

not make it inchoate.

receive part of the

or

is

Id.
__

Thus,

is "subject

by biological events"

does

a beneficiary's right

trust property that depends only

to

on his

her survival until the death of other persons is a vested

property right.

See Id.; Billings v. Fowler, 279 N.E.2d 906,

___ __
__________________

908

(Mass. 1972);

N.E.

Whiteside v. Merchants' Nat'l Bank, 187

____________________________________

706, 709 (Mass. 1933); Alexander v. McPeck, 75 N.E. 88,

___________________

92 (Mass. 1905).

But where the right depends on the exercise

or non-exercise of powers

right does not vest

no

longer

(remainder

held by another, the beneficiary's

until the person holding the

exercise them.

interests

of

See
___

Reiser,
______

powers can

389 N.E.2d

beneficiaries became

powers to amend

vested

at 770

upon

death

of settlor because his

or revoke the

trust

and direct payments from it died with him); Old Colony

__________

Trust Co. v. Clemons, 126 N.E.2d 193 (Mass. 1955) (rights of

_____________________

remainder beneficiaries did

where

he had

the

right

not vest

to

revoke

until settlor's

the

trust

or

death

change

beneficiaries).

part

of the

Any right in Fay's sons or sister to receive

trust

property is

not

contingent on

mere

-2727

biological event, but

power to

on whether

amend or revoke the

what amounts

or not

Fay exercises

trusts, and on to

she distributes income and

her

whom and in

principal while the

trust continues.

Due to

Their interests therefore are not vested.

the broad

nature of

Fay's powers

and the

limited and unenforceable nature of the beneficial interests,

Fay has the power to eliminate the interests of her sons

her

sister.

We

therefore think that

would treat the entire

and

a Massachusetts court

trust property of the Green

Pastures

and

Parker Hill Nursing Home Trusts as Fay's own in favor of

her

creditors.

Wolfe,
_____

to

Like

the settlors in

Fay has the right to

direct disposition

of

Reiser, Stockdale and

______ _________

amend and revoke the trusts and

principal and

income.

Although

there is nothing invalid in the roles of settlor, trustee and

beneficiary

meant

co-existing in the same person,

in this case it

that Fay had the power as trustee to distribute income

and principal

right

as a

whatever

beneficiary to

amount

unrestricted

trusts.

in whatever proportion she

she

as

receive income and

trustee

deemed

principal in

proper,

and

the

power as settlor to alter, amend, or revoke the

The trusts at issue here are even more vulnerable to

Fay's creditors

than those at issue in

because the other beneficiaries'

not

deemed proper, the

vested and Fay remains

Reiser and Stockdale

______
_________

interests in the trust have

able to exercise

thus deplete or destroy them.

-2828

her powers and

We do not

trust

hold that

the trusts are

invalid --

in which the settlor has reserved to herself the power

to alter, amend

one of

or revoke, and is also the

the trusts'

beneficiaries

with a

sole trustee and

right to

receive

income and principal in her own discretion as trustee, is not

invalid.

See
___

Roberts v. Roberts,
___________________

646

N.E.2d 1061,

1064

(Mass. 1995); Sullivan, 460 N.E.2d at 575; Ascher, 131 N.E.2d

________
______

at

199-200.

And

although

it

may

be

only

technical

distinction,

to amend

we do not hold that Fay must exercise her power

or revoke

to

satisfy the

tax debt.

See In re
___ ______

Cowles, 143 B.R. 5, 10 (Bankr. D. Mass. 1992) ("The Court can

______

allow

the creditors to reach the assets of the trust without

requiring revocation

of the trust.").

Rather,

we hold that

the federal tax lien on Fay's individual property reaches the

entire

Home

assets of the Green Pastures

and Parker Hill Nursing

Trusts because Fay has the power to eliminate the other

beneficiaries' interests and treat

own based on the

the trust property as her

following combination of provisions in

the

trust instruments: (1) Fay as settlor has the power to alter,

amend or

entire

revoke, which,

if exercised, could

result in

the

trust property vesting in her; (2) Fay as trustee has

absolute

discretion

to

pay

income and

principal

beneficiaries, including herself, in whatever

to

the

proportion she

deems appropriate, even if such payments entirely deplete the

other beneficial

interests; and (3) Fay

is settlor, trustee

-2929

and

a beneficiary.

Fay

invokes George v. Kitchens by Rice

___________________________

Bros., Inc., where

____________

under

we stated

that

"a power

of revocation

Massachusetts law is not considered property . . . and

cannot be reached

1981).

by creditors."

George
______

Massachusetts

remains

law where,

reserved by the

as

665 F.2d 7,

correct

in that

8 (1st

Cir.

interpretation

case, the

settlor, who was also the

of

only power

trustee but not a

beneficiary, was the power to revoke.

Because

mortgages

proceeds

otherwise

the tax lien

now held by the

of

the

replace

sale

of

trusts, the lien

the

the mortgages

Phelps v. United States,

_________________________

consequently attaches to the

421

nursing

as

homes

trust

U.S. 330,

attaches to the

that

property.

334

would

Cf.
__

(1975) (when

property

subject

to

tax

lien

is

transferred,

the

lien

attaches to the proceeds of the transfer).

B.

The Highland Avenue Nursing Home Trust

______________________________________

On August 14, 1974, Fay created the Highland Avenue

Nursing Home

life,

Trust, naming herself

as sole trustee

and the beneficiaries as herself, her two sons and her

sister

Dzialo,

"in equal

shares."

Paragraph

declaration of trust provides as follows:

subject to the

and

for her

dispose

limitations herein

of any

interest in

this

not a Trustee."

found

11 gives

-30-

Fay the

the

"The Trustee, may,

expressed, acquire,

extent as if she were

that paragraph

11 of

trust [to]

The

own,

the same

magistrate judge

power to

treat the

30

principal

and income of the trust

as her own, and held that

the IRS was therefore entitled to the proceeds of the sale of

the

Highland Avenue Nursing Home.

In reaching

observed

was

that

conclusion,

the

884 F.

Supp. at 609-10.

magistrate

judge

first

that the meaning of the trust instrument as a whole

difficult to discern, raising the

suspicion that it was

drafted "so as to give the trustee free reign but

also so as

to contain other language purporting to constrain the trustee

merely to have something at which to point

attacked."

Id.
__

at

607.

Against

if the trust were

this

backdrop,

the

magistrate judge found specific ambiguity in paragraph 11, in

that

the

term

"any

interest"

"beneficial interest"

trust.

Id.
__

at 609.

or the

so

because

"interest"

mean

either

"income and principal"

Resolving the ambiguity

drafter, the magistrate

must mean the

could

is

"beneficial" is

only

judge concluded that "any

used

other

without

instance

being

in

which

modified

in paragraph 23, referring

of the

against Fay as

"income and principal" of the trust.

the

Fay's

by

interest"

This was

the

word

the

word

to the "interest

of

any

beneficiary

principal."8

The

hereunder,

magistrate

either

judge

as

then

to

income

read

out

or

of

____________________

8.

Paragraph 23 is the spendthrift provision, providing that

"[t]he interest

of any

income or to principal,
or in any manner
be subject

as to

shall not be anticipated, alienated,

assigned by such beneficiary and

to any legal process,

the interference or
subject

beneficiary hereunder, either

shall not

bankruptcy proceedings, or

control of creditors or others,

nor the

matter of any contract or trust made or entered into

-3131

paragraph 11

the phrase

expressed,"

based

instrument

trustee.

could

trust.

erred

as

on

his

imposing no

Id. at 609.
__

treat

"subject to the

on

of

the

and income

We

hold

law in

as

that the

trust

Fay's powers

Paragraph 11 therefore meant

Id. at 609-10.
__

matter of

interpretation

limitation

the principal

as a

limitations herein

as

that Fay

her own

free of

magistrate judge

interpreting paragraph

11 as

giving Fay the power to treat the principal and income of the

trust

as her

instrument

own.

First,
_____

purpose to

we

mislead

fail to

or an

see

in the

unusual

trust

or unfair

allocation of powers, rights and interests among the settlor,

the trustee and the beneficiaries.

Fay reserved no powers to

herself as

settlor, but the magistrate judge

it significant that

on the

one hand, Fay

seemed to find

as trustee

holds

legal title to and has extensive powers to manage and dispose

of the trust

property, while on the other, the beneficiaries

do not have any

beneficial

title in the trust property, but

"shares of

interests" that cannot be transferred or assigned

without offering

them first to the

that are "personal

property, giving only the rights

instrument specifically set forth."

The

trust instrument's

powers, rights and

in this

Id. at 607-09.
__

definition of

interests was a correct

Massachusetts law of trusts.

____________________

other beneficiaries, and

the various

statement of the

The creation of a trust results

by any beneficiary."

-3232

in

the

separation

property,

which

interest

in the

Scott on Trusts,

of

is

in

the

interest

the trustee,

trust, which

99.

legal

is in

from

in

the

the

trust

beneficial

the beneficiaries.

The trustee holds the

legal title to

the trust property in trust

for the beneficiaries, while the

beneficiaries hold beneficial

in nature.

interests, which are equitable

See Russell v. Russell, 468

___ ___________________

N.E.2d 1104,

1106

(Mass. App. Ct. 1984) (defining a trust as the "manifestation

of

an

intention to

respect to

create

property, [which]

fiduciary relationship

subject[s] the person

with

by whom

the title to the property is held to equitable duties to deal

with

the

(internal

property

for

the

quotation marks

benefit

and citations

Shawmut Bank v. Cumming, 91

_________________________

(referring to the trustee's

"beneficial

interests" in

Trust Co. v. Turner,

___________________

of

N.E.2d 337,

another

person")

omitted); National
________

338 (Mass.

1950)

"title" to and the beneficiary's

the

trust

property);

96 N.E. 132, 134 (Mass.

Worcester
_________

1911) (trustee

holds title

to the

receive

much

so

discretion, but no

trustee

principal; beneficiary

of

it

as

necessary

absolute right

does not hold trust

to real

proceeds

estate in trust for

as his

own); cf.
__

in

to the fund

property as her

fact that she holds legal title to it.

N.E. 581, 582-83 (Mass. 1932)

has

a right

the

to

trustee's

itself).

own due to the

See Cook v. Howe, 182

___ ____________

(trustee who holds legal title

a beneficiary may

not keep the

Cantor v. Wilbrahim and Monson

________________________________

-3333

Academy,
_______

legal

of

609 F.2d

32, 35

in order

to manage

broad powers to

trust's business.

to the

1979) (trustee

is the

owner, but the trust itself is the debtor for purposes

the Bankruptcy Act).

hold,

(1st Cir.

the

Rather, a trustee holds legal title

trust property,

do so as a

and typically

practical way of

has

conducting the

Like any trustee's powers, Fay's powers to

manage and dispose of

the trust property were subject

"specific limitations herein contained,"

that is, to

conduct the trust business "for the benefit of the holders of

the shares hereunder."

That

the

beneficiaries' interests

were "personal

property" was also a correct statement of the law.

Where, as

here, a trust contains both real and personal property,9

the

trust

instrument

directs

that

liquidated upon termination of the

interests

are personal property

the

trust

assets

and

be

trust, the beneficiaries'

from the trust's inception.

See Priestley v. Burrill, 120 N.E. 100, 104-05 (Mass. 1918);

___ _____________________

Dana v. Treasurer and Receiver General, 116 N.E. 941, 943-44

_______________________________________

(Mass. 1917).

____________________

9.

Fay as trustee was to "hold [the

Highland Avenue Nursing

Home] and cash so to be acquired by her, as well as all other

property which
the

she may acquire as such Trustee together with

proceeds thereof,"

maintain

the

and

trust property

was "authorized
and

invest

to manage

and

and reinvest

the

property and proceeds of the trust in real estate, mortgages,

securities of any lawful business and to engage in any lawful
business."

-3434

The

language

beneficial interest .

providing

that

"ownership

. . shall not entitle

of

the beneficiary

to any title in or to the trust property whatsoever, or right

to call

for a partition or

division of the same,

or for an

accounting," is not unfamiliar in Massachusetts trusts.

e.g., Gardiner v. United States, 49 F.2d 992, 994

____ __________________________

1931); Lauricella v. Lauricella, 565 N.E.2d

_________________________

1991);

State Street Trust Co. v. Hall,

______________________________

(Mass. 1942); Dana, 116 N.E.

____

it

is

correct

beneficiaries

do

statement

not

hold

at 942.10

of

See,
___

(1st Cir.

436, 437 (Mass.

41 N.E.2d 30, 32, 35

As set forth

the

law

of

trusts

title to

the

trust

above,

that

property;

____________________

10.

Trusts that

similar purpose

contain similar provisions and

in that at least part

that have a

of the purpose of the

trust is to carry on a business, are common in Massachusetts.

Whether

such a trust is, for various purposes, a pure trust,

a business trust or
and depends

on

a partnership has often

the

relative

beneficiaries, whether

powers of

been litigated,

the

the primary activity of

trustees

and

the trust is

commercial,

and whether it issues transferrable certificates

of shares.

See Hecht v. Malley, 265 U.S.

___ ________________

144 (1924); Pope

____

and Cottle Co. v. Fairbanks Realty Trust, 124 F.2d

_________________________________________

132 (1st

Cir. 1941); Bomeisler v. M. Jacobson & Sons Trust,

______________________________________

118 F.2d

261 (1st Cir.

1941); Gardiner,
________

Green Realty Trust, 113

__________________

49 F.2d 992;

In re Village
______________

B.R. 105 (Bankr. D. Mass.

re Medallion Realty Trust,

___________________________

120 B.R.

1990); In
__

245 (Bankr.

D. Mass.

1990); In re L & V Realty Trust, 61 B.R. 423 (Bankr. D. Mass.

________________________
1986); First Eastern Bank v. Jones, 602
_____________________________
1992);

Hall, 41
____

Taxation,
________

N.E.2d 30;

148 N.E.

1925); Dana,
____

N.E. 1009 (Mass.

Inhabitants of Milton, 102

_____________________

(Mass.

Baker v. Comm'r of Corps. and

_______________________________

593 (Mass.

Frost v. Thompson, 106

__________________

N.E.2d 211

116 N.E.

941;

1914); Williams v.
___________

N.E. 355 (Mass. 1913).

See also
___ ____

Takemi Ueno, Defining a "Business Trust": Proposed Amendment

________________________________________________
of Section 101 (9) of the Bankruptcy Code, 30 Harv.
____________________________________________

J. on

Legis.

499

(1993).

That question

is

not before

us, but

trusts with characteristics like those of the Highland Avenue

Nursing

Home

Trust

are

a "lawful

business in [the] Commonwealth."

method

of

transacting

Hall 41 N.E.2d at 34.

____

-3535

rather, they own an equitable interest in the trust property.

Although

we

are

somewhat

purporting to deny the

concerned

about

the

beneficiaries a right to call

language

for an

accounting, that language would

beneficiaries

had petitioned

Briggs v. Crowley,
_________________

spendthrift

224 N.E.2d

provisions

Massachusetts.

have been disregarded if the

like

court

for

an

417, 421 (Mass.

the

one

here

accounting.

1967).

are

valid

And

in

Pemberton, 411 N.E.2d at 1312.

_________

Second, we
______

think

that the

interpretation of

the

term "any interest" in paragraph 11 as "income and principal"

is extraordinarily strained,

not

follow

beneficiaries

even

other

from

than

but more to the point,

that

Fay

interpretation

do

not

have

it does

that

the

enforceable

equitable interests in the trust or that Fay has the power to

eliminate

those interests

agree that paragraph

in

her own

favor.

Although we

11 is ambiguous viewed in isolation, it

is

not

susceptible

attributed

to it

of

the meaning

when viewed

instrument as a

whole.

account of

distribution of

the

should have led to

the

in the

magistrate

context of

The magistrate judge

powers

the trust

did not

take

trust

that

in the

the conclusion that Fay did

judge

not have the

power to eliminate the other beneficiaries' interests.

Fay

did

not

reserve

to

herself

the

right

to

unilaterally alter, amend or revoke the trust, but granted it

to

those holding a majority of beneficial shares.

-3636

The trust

is to terminate

terminated

earlier

outstanding,

at

beneficiaries,

which

the

terminates,

the trust,

twenty years

"by

after Fay's death,

majority

meeting

of

vote

the

The

of

all

trustee

and

be

shares

the

called for that expressly stated purpose," at

trustee

may

not

vote.

Whenever

the then trustee(s) must wind

liquidate the assets and

trust "may

be amended

the

trust

up the affairs of

distribute the proceeds

among the beneficiaries in proportion to the

them.

or may

shares owned by

or altered

in any

part

whatever . . .

with the consent of a

majority percentage of

vote as hereinbefore provided."

A settlor

grant them

may either reserve powers

to others, Crocker, 28
_______

"cannot be revoked or

do

N.E.2d at 7,

to herself or

but a trust

altered except by a reserved

power to

so, which must be exercised in strict conformity with its

terms."

1963)

Trager v. Schwartz, 189

___________________

(citations omitted).

Pfeifer Found., Inc.,

_____________________

402

1980); Stahler v. Sevinor,

__________________

Thorp v. Lund, 116

_______________

N.E.2d 509, 511-12

See also
___ ____

N.E.2d 76,

Markell v. Sidney B.
_____________________

92

(Mass. App.

84 N.E.2d 447, 448

N.E. 946

(Mass.

Avenue Nursing Home Trust therefore

(Mass.

1917).

Ct.

(Mass. 1949);

The Highland

could only be altered or

revoked by

the beneficiaries

Just as Fay could eliminate

Pastures

power

to

holding a majority

other beneficiaries of the Green

or Parker Hill Nursing

alter

or

amend,

of shares.

Home Trusts as

those

holding

part of her

majority

of

-3737

beneficial shares

in the Highland Avenue

Nursing Home Trust

could

eliminate Fay

power

to amend

other

as

"in any

beneficiaries

a beneficiary

by exercising

part whatever."

could

have

ousted

Although beneficiaries cannot appoint

their

Furthermore,

Fay

as

the

trustee.

a new trustee

without

an express grant of power to do so, where, as here, they have

a power to

trust

revoke and to compel the

property

immediately

to

create a

Scott on Trusts

them,

they

new trust,

can

trustee to transfer the

revoke the

naming a

trust

new trustee.

108.4; Restatement (Second) of Trusts

and

108

cmt. i.

Moreover, Fay does not have unbridled discretion as

trustee

the other

to take income or invade principal at the expense of

beneficiaries, who

have enforceable

interests in

the trust.

amount

least

While Fay

may distribute net

as she sees fit,

she must make

earnings in

such

some distribution at

annually "in the proportion to the shares owned by the

beneficiaries."

Furthermore,

the trust instrument evidences

Fay's intent that, upon termination, the trust property go to

beneficiaries in addition

that time,

the assets

to herself or her successors.

must be

liquidated and

At

the proceeds

distributed proportionately among the beneficiaries.

Although

Fay

beneficiary,

the

unilaterally

alter, amend

is

the

settlor,

trust instrument

or revoke

-3838

gives

trustee

her

the trust,

and

no power

to

limits her

discretion as

right

to receive

proportion

powers

trustee to

to the

therefore

distribute income, and

income as

a beneficiary

shares owned

were not

so

by her.

limits her

to an

Fay's

centralized as

amount in

rights and

to

make the

entire trust property her own.

In light

of the trust

conclude that paragraph

power

11 does

instrument as

a whole,

we

not mean that

Fay has

the

to treat the principal and income

of the trust as her

own free of trust.

beneficial

The term "any

interest, so

like any other

interest" could mean Fay's

that paragraph

11 means

beneficiary and although she is

that Fay,

the trustee,

may acquire, own and dispose of shares in accordance with the

conditions

trust;11

in

and procedures

receive annual

set forth

distributions out

proportion to her share; and

in the trust

in the

declaration of

of net

earnings

have her equitable interest

pass to her successors

upon her death.12

See
___

____________________

11.

Paragraph 13

hereby

created

provides
shall

not

that "the
be

beneficial

transferrable

interests

or assignable

without first offering said shares to the other beneficiaries

in

writing."

beneficiaries of

The

trustee

must

notify

a beneficiary's offer to

the

remaining

sell shares; they

or any of them may accept the offer, or, alternatively, three

arbitrators may

be

chosen to

ascertain

the value

of

the

offered shares; the

free

of

beneficiary desiring to

restriction

thirty

days

from

sell may do

the

date

of

so
the

arbitrators' determination if the beneficiary desiring to buy

has not paid the amount

so determined; and if more

beneficiary desires to buy,

they may buy the offered

than one
shares

in proportion to the shares held by them.

12.

The executors, administrators or assigns of any deceased

beneficiary are to

succeed to

his or her

trust.

-3939

rights under

the

Andreson v. Andreson, 562

____________________

N.E.2d 91, 92 n.2 (Mass.

1990)

stated

(trust

without

impropriety

exercise

though he

"any

instrument

become

were not

beneficiary

a trustee.").

could

mean

undistributed income, so

free

"[a]ny

trustee

may

hereunder

and

all rights of a beneficiary with the same effect as

interest"

trustee

that

App. Ct.

control of

trust

the term

principal

and

that paragraph 11 means that Fay as

had full power to

of the

the

Alternatively,

manage the business

of the trust

the other beneficiaries

(who could

remove her as a beneficiary or as trustee).

Cf. Navarro Sav.

__ ____________

Assoc. v. Lee, 446

_____________

(1980) (trustees

U.S. 458, 459, 465 n.14

had exclusive authority over trust property free from control

of shareholders "as if

the Trustees were the sole

owners of

the Trust Estate in their

own right," while shareholders had

power to terminate or amend).

was "subject

Under any

to the limitations herein

her duty as trustee to hold the

interpretation, Fay

expressed," that is,

trust property "in trust, to

manage and dispose of the same for the benefit of the holders

of the shares."

In sum,

we hold

that the entire

property of

the

Highland Avenue Trust does not constitute Fay's "property" or

"rights to

attach

property" to

because

powers, rights

trusts,

the

which

trust

instrument

and interests in

gives the

the federal

defines the

accordance with the

beneficiaries other than

-40-

tax lien

could

various

law of

Fay enforceable

40

equitable interests in the trust property,

and does not give

Fay the unilateral power to eliminate their rights.

The lien

of Fay's

does, however, attach

beneficial interest in the

Home Trust

that constitutes

property"

under Massachusetts

to whatever aspect

Highland Avenue Nursing

present "property or

law.13

While a

rights to

federal tax

lien attaches

to property

and rights

taxpayer acquires at any time

to property that

the

after assessment, it does

not

attach unless and until the taxpayer acquires what is defined

as property by

U.S. __,

held

state law.

113 S. Ct.

that

while

United States v. McDermott,

___________________________

1526, 1530

federal

(1993).

tax

Thus,

lien

__

courts have

attaches

to

taxpayer/beneficiary's present right to receive distributions

of

income

or principal,

corpus when he

it does

or she has

United States v. Cohn, 855

______________________

1994); In re Cavanaugh,
_______________

1993);

(Bankr.

attach to

no present right

F. Supp. 572,

153 B.R.

Wilson v. United States,

_________________________

N.D. Tex. 1992).

not

See also
___ ____

the trust

to receive

576-77 (D.

it.

Conn.

224, 228 (Bankr. N.D. Ill.

140

B.R.

400,

404, 407

In re Lyons, 148 B.R. 88

___________

(Bankr. D.D.C. 1992)

("a federal

tax lien may

attach to

____________________

13.

The

spendthrift

beneficial

interest

beneficiary.
N.E. at 419.

clause

is

because

See Morrissey,
___ _________
Moreover,

she

federal

both

to

Fay's
and

109 N.E.2d at 823; Forbes,

______

140

a spendthrift clause

of the substantive
lien attaches.

is

as

settlor

state-created exemption from the

an aspect

ineffective

is "merely

reach of creditors, and not

[property] right"

to which

United States v. Rye, 550 F.2d 682,

_____________________

685 (1st Cir. 1977).

-4141

taxpayer's

vested

periodic payments

right, under

a trust

or distributions

. .

to receive

of property then

due or

that will become due in the future.").

Fay's

net

receive annual

earnings in proportion to

until

the trust

property

settlor

and

right to

right.

See
___

her share until

earlier is

Forbes, 140 N.E.

______

cannot place property

keep it

"creditors

under the

terminates

beyond

can reach

the

distributions from

a presently

at 420.

in trust for

reach

the maximum

of

his

her death or

vested

Because "a

his own benefit

creditors,"

amount which

Fay's

the trustee

terms of the trust could pay to [her] or apply for

[her]

benefit."

1954),

citing

Ware v. Gulda, 117 N.E.2d

______________

Restatement

(Second)

of

(internal quotation marks and additional

Fay's

right

than

right to

sell her

137, 138 (Mass.

Trusts

156(2)

citations omitted).

share is

not

a present

to property because she cannot sell it to anyone other

her

consent.

co-beneficiaries without

See note 11, supra.

___
_____

at

least their

passive

In United States v. Bess, the

______________________

Supreme Court held that a lien attached to an insured's right

under

the terms of his life insurance policy to exchange the

policy for its cash surrender value during his lifetime.

U.S. at

56.

Fay's

similar

to Bess's

right to

right

sell her

to exchange

beneficial share

his policy

357

is

for cash,

except that Fay's right

to sell is qualified and

limited by

-4242

the rights of the other beneficiaries to buy her share, while

Bess's right to

cash in

distinction is critical

tax

lien can attach only

his policy was

unqualified.

because Fay has property

insofar as conferred

This

to which a

by the trust

instrument as it would be enforced by state law.

Mercantile Exch. v. United States,

___________________________________

(7th

Cir.

840 F.2d

Cf. Chicago
__ _______

1352, 1354-56

1988) (where taxpayer could transfer his exchange

seat only as authorized and

on the conditions prescribed

in

the exchange rules, with no rights in or to the membership or

the

proceeds

specifically

member's

of

the

granted

in

sold, was

internal claims

found any Massachusetts

right to sell a

of such

the

property interest

been involuntarily

after

sale

membership

rules,

in the

the

full

seat, which

the remainder of

were paid.).

Although

as

extent

of

had already

the proceeds

we have

case discussing whether a

beneficial interest in a trust

except

not

qualified

is property,

we have no doubt that a Massachusetts court would enforce the

other

beneficiaries'

attempted to sell it

or

right

therefore is

buy

Fay's

to an outsider without

without their consent.

share

to

not a

share

she

consulting them

Fay's limited right

present right

if

to sell her

to property.

The

lien, of course, will attach to the proceeds from the sale of

Fay's

is

share if and when she

not paid),

because

sells it (assuming the tax debt

she will

property free of trust.

-4343

then

be holding

her

own

Nor does

trust corpus.

As

Fay have

a beneficiary,

trust property or right

of it

as long

rights in this

as

continues, and

or withdraw any of the

In re Cowles, 143
_____________

property," so

B.R.

5, 10

or division

has "only

(Bankr. D.

creditors could

trust principal); Wolfe, 486

the

the

She has

trust principal.

to withdraw "any part

his

in the

title to

to call for a partition

the trust

(settlor had the power

trust

she has no

instrument specifically set forth."

no right to receive

Cf.
__

present property rights

Mass. 1992)

or all of

reach the

N.E.2d at 749 (settlor

the

entire

had the

_____

right

to withdraw 5/6 of

was permitted

to reach

the trust corpus,

that part

of the

so his creditor

trust principal).

According to the declaration of trust, Fay could receive

share

of the

liquidated assets

during life

only if

owning a majority of beneficial shares vote to

trust

during

her

lifetime;

otherwise,

her

those

terminate the

her

executors,

administrators or assigns will succeed to her rights upon her

death.

As set

law,

whether

"whether,

established

in

forth in

Part III(A), under

right in

substance,

to constitute

accrued to its

trust

the

an

holder," that

has

Massachusetts

vested depends

interest

interest or

is, whether it

is

on

sufficiently

right which

is subject

has

to

defeat

only by biological events, in which case the right is

vested, Groswold, 444 N.E.2d at 363, or whether it is subject

________

-4444

to defeat by

another person's decision

that he or she holds,

to exercise a

in which case the right does

power

not vest

until the person holding the power can no longer exercise it.

Reiser,
______

389 N.E.2d

possibility

corpus

of

terminate

the

that Fay

during

majority

at 770;

her

the

Clemons, 126
_______

might

receive a

lifetime

hinges

holders

of

N.E.2d 193.

share

on

of the

whether

beneficial

shares

The

trust

or not

vote

to

the trust, and whether or not they decide to amend

trust by removing

her as a beneficiary.

Thus, it does

not amount to a present right to property under Massachusetts

law.

The lien will attach to

her share of the assets if and

when the trust terminates during her lifetime (again assuming

the

tax

debt is

still unpaid),

because

she will

then be

holding her own property free of trust.

Assuming that a

not vote to

majority of

terminate the trust

the beneficiaries

during Fay's lifetime,

do

her

executors,

assigns

will succeed

to

rights under the trust upon her death.

In Bess, the
____

Supreme

Court

policy

administrators or

stated with regard to the proceeds of a life insurance

that "[i]t would

be anomalous to

subject to lien proceeds never

view as 'property'

within the insured's reach to

enjoy, and which are reducible to possession by another

upon

her

the

beneficiary

insured's

comes to

Massachusetts,

death

an

when his

end."

the right of a

Id.
__

right

at

to

change

55-56.

But

only

the

in

trust beneficiary to have his

-4545

share

of the trust corpus

death

has been treated as a present right to property during

the

paid over to

beneficiary's lifetime.

See, e.g.,
___ ____

420; Alexander, 75 N.E. at 92.

_________

trust

instrument

of

trust,

Whether

to

the

there will

however, the

provided

that

corpus was to be paid

beneficiary's

be any

Forbes, 140 N.E. at

______

In those cases,

unequivocally

beneficiary's share of the

his successors upon

successors

interest in

the

over, free

upon

the trust

death.

to which

Fay's

heirs

or assigns

could

succeed

depends, again,

on

whether those holding a majority of beneficial shares vote to

terminate the trust

as a

beneficiary.

successors

receive

therefore is

property.

120

F.2d

decedent

We

think that

income

or

too ethereal to

eliminate Fay

Fay's right

principal

to have

from

the

constitute a present

her

trust

right to

The lien will attach, however, upon Fay's death to

whatever beneficial

assuming

before Fay's death, or to

interest she

the tax debt remains

141,

143 n.2

(1st

holds at that

unpaid.

Cir.

Cf.
__

1941)

time, again

Welch v. Paine,
______________

(creditors of

must be paid before his property passes to the next

of kin).

We

remand to

the magistrate

judge to

fashion an

order

enforcing the

tax

lien

on

Fay's present

receive annual distributions from net earnings

to her share.

to discern

That the

does

not

right

to

in proportion

value of this right may be difficult

alter the

conclusion

that

the

lien

-4646

presently attaches, Rye,

___

550 F.2d

at 685;

Raihl v. United
________________

States, 152 B.R. 615, 619 (Bankr. 9th Cir. 1993), but it does
______

not

flow

executed

from that

conclusion

upon immediately.

F.2d 1142, 1145 (9th

held in

Coluccio,
________

51

constructive

is

342

trust

are

co-owned

located."14

be

FDCPA, property

(2d

Cir.

1995)

property),

only "to the extent such

under the law of the

28

can

property," cf. United States v.

__ _________________

337,

is subject to execution

it

Under the

F.3d

government can execute on

the property

United States v. Overman, 424

__________________________

Cir. 1970).

trust is "co-owned

that

U.S.C.

3203(a);

(funds

in

which

the

property

State in which

28

U.S.C.

3010(a).

In Massachusetts,

a trust cannot be

terminated in

order to pay a creditor at any time earlier than the terms of

the

trust provide,

other

than the

Alexander,
_________

an

at least

debtor.

upon in one of

of net

two ways.

could not be reached and

of

See
___

75 N.E. at 91.

annual share

Forbes,
______

are beneficiaries

140

N.E.

at

421;

Fay's beneficial right to receive

earnings can, however,

First,

even though it

be executed

ordinarily

applied "until a future time or

uncertain value," it can

value can be ascertained

where there

be reached and

is

applied "if the

by sale, appraisal or by

any means

____________________

14.

When

section

the

IRS seeks

to

collect other

than

through a

7403 proceeding or by levy, it has the privileges of

an ordinary judgment creditor, Rodgers, 461 U.S. at 682, 697,

_______
or in this case, whatever privileges the FDCPA confers.

-4747

within the ordinary procedure

ch. 214

3(6).

Hoss, 249 N.E.2d

____

of the court."

Mass.

Gen. L.

See also New England Merchants Nat'l Bank v.

___ ____ ___________________________________

635, 638 (Mass. 1969);

at 710;

Alexander, 75
_________

N.E.

receive

annual distributions

at 92.

from net

Whiteside, 187 N.E.

_________

Thus,

Fay's right

to

earnings conceivably

could be sold

could

and the proceeds paid to the

be ascertained and a

share of

buyer found.

net earnings could be

IRS if its value

Alternatively, her

paid to the IRS

due

annually according to the

140

N.E. at 421; see also United States v. Solheim, 953 F.2d

___ ____ ________________________

379, 382 (8th

Cir. 1992);

terms of the

as it comes

Cohn, 855 F.
____

United States v. Taylor, 254

________________________

magistrate

judge may

proceed

Supp. 572,

F. Supp. 752,

1966), cited with approval in Rye,

________________________ ___

trust.

576-77;

758 (N.D.

550 F.2d at

according

Forbes,
______

685.

to either

Cal.

The

method,

holding hearings or other proceedings as necessary.

IV.

CONCLUSION
__________

On

remand,

the

judgment

should

be

modified as

follows:

The United States

proceeds

of the sale of

Nursing

Homes)

proceeds.

to

plus

is entitled to

$11,686.22 (the

the Green Pastures

and Parker Hill

accumulated

on

the

interest

those

The Highland Avenue Nursing Home Trust is entitled

$16,046.63

(the proceeds

of

the sale

of

the Highland

Avenue Nursing Home), plus the accumulated interest, less any

amount

determined to be presently

magistrate

judge shall

fashion an

-4848

payable to the

order enforcing

IRS.

The

the tax

lien on Fay's right

to annual payments from net

earnings of

the Highland Avenue Nursing Home Trust.

Affirmed in part, reversed in part, and remanded

Affirmed in part, reversed in part, and remanded
___________________________________________________

for a new judgment. No costs.

for a new judgment. No costs.
_____________________________

-4949