The foundation of the federal appellate court’s holding in JPMorgan Chase Bank v. Winget (6th Cir., 2022) is the false premise that an inter vivos trust under which its settlor has reserved a right of revocation (hereinafter “revocable trust”) and the settlor personally are autonomous when it comes to affording the settlor’s creditors access to the entrusted property. Throughout the court’s opinion the trust is referred to as an “entity.” First, a trust is a fiduciary relationship with respect to property title to which is in the trustee. It is not an entity. Second, equity deems property subject to a revocable trust to be owned outright by the settlor for creditor access purposes. Just as moving funds from one’s checking account to one’s savings account alone cannot be a fraudulent conveyance, so also revoking one’s revocable trust alone cannot be one. In neither situation is economic value relinquished or alienated.

Judge Alice M. Batchelder dissented “in the perhaps vain hope that this small gesture might help restrain the opinions and holdings in this case to just this case.” She bemoaned the 15 years of unnecessary litigation that had been fueled by the early muddling of basic trust law by an ever-unrepentant appellate court. There had already been eight appeals, not to mention 40 federal district court opinions.

Here is the trust law that should have been applied throughout: During the lifetime of the settlor of a revocable trust, the trust property is subject to the claims of the settlor’s creditors. In equity, the right of revocation is an ownership-equivalent power. While such a trust is a true trust and not an agency, see National Shawmut Bank v. Joy, 53 N.E.2d 113 (Mass. 1944), functionally the trustee, for all intents and purposes, is an agent of the settlor. Thus, as is the case with the relationship of principal and agent, it cannot be said that the settlor of a revocable trust and the trust relationship itself are autonomous. As to a revocable declaration of trust, where the settlor and the trustee are one and the same, even the agency analogy breaks down as one cannot enter into an agency relationship with oneself. The Winget trust was just such a trust.

Here is what happened: Venture, Mr. Winget’s company, became insolvent. Venture owed lenders $450 million. In exchange for Winget’s personal guarantee of $50 million, Chase, the lenders’ administrative agent, held off accelerating the debt. As per the unfortunate documentation, the “trust” ostensibly was a co-guarantor. Lacking, however, was any language applying to the “trust” the $50 million cap. The trial judge had found this omission to have been a mutual mistake. Venture filed for bankruptcy. Winget paid the $50 million. Chase then endeavored to reach and apply the assets subject to his revocable trust in satisfaction of the “rest of the debt.” At some point Winget revoked the trust. In 2022 the appellate court held that the revocation had been a fraudulent conveyance in that the $50 million cap applied only to Winget personally: “Today, we address whether Winget can revoke the Trust, making the trust assets unreachable to Chase. He cannot.” Judge Batchelder dissented: The entrusted assets had always been reachable by Chase, but subject to the $50 million cap, this because from the outset the reserved right of revocation, in equity, had been a power equivalent in substance to outright and unrestricted ownership of the entrusted property.

For some basic trust law ignored in this litigation see §5.3.3.1 of Loring and Rounds: A Trustee’s Handbook (2022), which section is reproduced in its entirety in the Appendix A below. The Handbook is available for purchase at https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.

For a full transcription of Judge Batchelder’s dissent, see Appendix B below.