               United States Bankruptcy Appellate Panel
                                FOR THE EIGHTH CIRCUIT



                                      No. 99-6036MN


In re:                                       *
                                             *
John P. Simmonds and                         *
TinaMarie Simmonds,                          *
                                             *
         Debtors.                            *
                                             *
John P. Simmonds and,                        *         Appeal from the United States
TinaMarie Simmonds,                          *         Bankruptcy Court for the
                                             *         District of Minnesota
         Appellants,                         *
                                             *
               v.                            *
                                             *
Dorraine A. Larison, Trustee,                *
                                             *
         Appellee.                           *



                                Submitted: October 12, 1999
                                 Filed: November 17, 1999



Before KOGER, Chief Judge, WILLIAM A. HILL, and SCHERMER, Bankruptcy Judges

SCHERMER, Bankruptcy Judge
        Debtors John P. Simmonds and TinaMarie Simmonds appeal the bankruptcy court’s1
order determining that the beneficial interest of John P. Simmonds (“Debtor”) in a self-
settled trust is property of the bankruptcy estate and directing the turnover of his beneficial
interest in the trust to the bankruptcy trustee. We have jurisdiction over this appeal from the
final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below,
we affirm.

                                           ISSUE

       The issue on appeal is whether the Debtor’s beneficial interest in a self-settled trust
is excluded from his bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2) as a spendthrift
trust under Minnesota law.

                                      BACKGROUND

        The facts are not in dispute. On November 14, 1991, Debtor transferred certain assets
into a trust created by the John Patrick Simmonds Trust Agreement (the “Trust”). Debtor is
the settlor and the primary beneficiary of the Trust. The Trust is irrevocable and contains
an anti-alienation provision.

        On December 18, 1998, Debtor filed a Chapter 7 bankruptcy petition. Debtor listed
his beneficial interest in the Trust and noted on Schedule C that such interest was “not
property of the estate.” Dorraine A. Larison, the bankruptcy trustee (“Trustee”), objected
to the claimed exemption. The parties stipulated to treat the Trustee’s objection to Debtor’s
exemption as a motion for turnover of Debtor’s beneficial interest in the Trust to the Trustee.
By order dated April 28, 1999, the court determined that Debtor’s interest in the Trust is
property of the bankruptcy estate and ordered the Debtor to turn over his beneficial interest
in the Trust to the Trustee. The Debtor argues that the Trust is a spendthrift trust under
Minnesota law and, accordingly, his beneficial interest therein is excluded from his
bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2).


       1
          The Honorable Nancy C. Dreher, United States Bankruptcy Judge for the District of
Minnesota.

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                                 STANDARD OF REVIEW

       We review the bankruptcy court’s conclusions of law and determination of state law
de novo. Fed. R. Bankr. P. 8013; Salve Regina College v. Russell, 499 U.S. 225 (1991);
O’Neal v. Southwest Mo. Bank (In re Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th
Cir. 1997); In re Rine & Rine Auctioneers, Inc., 74 F.3d 848, 851 (8th Cir. 1996).

                                        DISCUSSION

        The commencement of a bankruptcy case creates an estate which generally includes
“all legal or equitable interests of the debtor in property as of the commencement of the
case.” 11 U.S.C. § 541(a)(1). Excluded from the estate, however, is an interest of the
debtor in a trust that is restricted from transfer under applicable nonbankruptcy law. 11
U.S.C. § 541(c)(2); Patterson v Shumate, 504 U.S. 753 (1992); Drewes v. Schonteich, 31
F.3d 674, 676 (8th Cir. 1994). The Trust was created under Minnesota law. Therefore, we
must look to Minnesota law to determine whether the Debtor’s interest in the Trust is
restricted from transfer so as to be excluded from the bankruptcy estate.

        The Minnesota Supreme Court has recognized the validity of spendthrift trusts.

              The validity of a spendthrift trust is upheld on the theory that the
              owner of the property, in the free exercise of his will in disposing
              of it, may secure such benefits to the objects of his bounty as he
              sees fit and may, if he so desires, limit its benefits to persons of
              his choice, who part with nothing in return, to the exclusion of
              creditors and others.

In re Moulton’s Estate, 46 N.W.2d 667, 670 (Minn. 1951), quoted in Morrison v. Doyle, 582
N.W.2d 237, 240 (Minn. 1998).

       Minnesota courts have not specifically addressed the issue of whether a trust qualifies
as a spendthrift trust where the settlor is also the beneficiary. Federal courts faced with the
issue, however, have consistently concluded that Minnesota courts would not recognize a

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spendthrift trust in such a situation. Drewes v. Schonteich, 31 F.3d 674, 677 (8th Cir. 1994);
In re Swanson, 873 F.2d 1121, 1123-24 (8th Cir. 1988). The Eighth Circuit Court of Appeals
interpreted the Minnesota Supreme Court’s language in Moulton as contemplating an
arrangement wherein the settlor of a spendthrift trust is not also the beneficiary. Drewes v.
Schonteich, 31 F.3d at 677; In re Swanson, 873 F.2d at 1123.

       Bankruptcy courts have utilized a three-prong test based on the Minnesota Supreme
Court’s language in Moulton to determine whether a trust qualifies as a spendthrift trust under
Minnesota law. A spendthrift trust is one in which: (1) the trust implicitly or explicitly
prohibits the voluntary and involuntary alienation of the beneficiary’s interest; (2) the
beneficiary is not also the settlor of the trust; and (3) the beneficiary has no present dominion
or control over the trust corpus. In re Taylor, 119 B.R. 170, 177 (Bankr. N.D. Iowa 1990);
In re Fritsvold, 115 B.R. 192, 195 (Bankr. D. Minn. 1990); In re Hansen, 84 B.R. 598, 601
(Bankr. D. Minn. 1987); In re Loe, 83 B.R. 641, 645 (Bankr. D. Minn. 1988).

        We believe that Minnesota courts would not recognize a trust as a spendthrift trust
where the settlor is also the beneficiary. Consequently, we hold that the Trust is not a
spendthrift trust under Minnesota law. Accordingly, the Debtor’s beneficial interest in the
Trust is not excluded from his bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2) but rather
is part of his bankruptcy estate pursuant to 11 U.S.C. § 541(a) and must be turned over to the
Trustee pursuant to 11 U.S.C. § 542.

                                       CONCLUSION

       Based on the foregoing, the bankruptcy court’s order concluding that the Debtor’s
interest in the Trust is property of his bankruptcy estate and directing the turnover of the
Debtor’s beneficial interest therein to the Trustee is affirmed.




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A true copy.

      Attest:

                CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                EIGHTH CIRCUIT




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