State Street Bank & Trust Co. v. Reiser
7 Mass. App. Ct. 633, 389 N.E.2d 768 (1979)

  • Dunnebier created an inter vivos trust. He filled it with stock. The trust gave Dunnebier the power to revoke as well as the right to direct the disposition of the principle and the income.
    • At the same time, he executed a will that left the residue of his estate to the trust.
  • Later, Dunnebier applied for a bank loan from State Street Bank. He used the stock in the trust as collateral for the loan without mentioning to the bank that the stock was technically owned by the trust.
  • Dunnebier died suddenly. There was not enough money in his estate to pay off the loan to the bank.
  • The bank looked to get the money out of Dunnebier's trust.
    • The trust, which has a provision stating that the trustee had the discretion to pay expenses and debts of administration of Dunnebier's estate out of trust assets.
    • The will had a provision instructing that the executor pay his debts.
    • The bank suggested that the two instructions should be read together and demanded that the trust administrator pay off the loan.
  • The Probate Court found that the bank could not demand assets be paid out of the trust. The bank appealed.
  • The Appellate Court reversed and ordered the trust to pay off the debt.
    • The Appellate Court noted that if Dunnebier were still alive, the Court could order him to pay the debt out of the trust, since he had the power to direct the disposition of trust assets.
    • Therefore, the Appellate Court reasoned that a creditor should have the same ability after death to reach what they could in life. So, the trust could be ordered to pay Dunnebier's debt.
  • Basically, assets in an inter vivos trust which the decedent had control over during life can be reached by creditors after death. Assets that the decedent had no control over during life, such as a money from a life insurance policy that only entered the trust after death, cannot be reached by creditors.
    • Public policy dictates that people should pay their bills, so it would be unjust enrichment to avoid debt.
    • Like spenthrift trusts and augmented estates, creditors can't get to the will substitutes until they have already exhausted all the money left in the estate.