Rush University Medical Center v. Sessions
980 N.E.2d 45, 2012 IL 112906 (2012)
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Rule of Law:
The common law rule that a self-settled spendthrift trust is void as to existing and future creditors is not abrogated by the Uniform Fraudulent Transfer Act (UFTA) in Illinois, as there is no express legislative intent for abrogation or irreconcilable repugnancy between the two laws.
Facts:
- On February 1, 1994, Robert W. Sessions established the “Sessions Family Trust,” placing his 99% limited partnership interest in Sessions Family Partners, Ltd, and property in Hinsdale, Illinois, into it.
- Sessions was both the settlor and a lifetime beneficiary of the trust, which was irrevocable, authorized trustees to make distributions of income and principal to him for his 'comfort and well-being, pleasure, desire and happiness,' and contained a spendthrift provision prohibiting trust assets from being used to pay his creditors.
- Sessions also designated himself as the “Trust Protector,” giving him absolute power to appoint or remove trustees and veto their discretionary actions, as well as the power to appoint or change beneficiaries.
- In the fall of 1995, Sessions made an irrevocable pledge of $1.5 million to Rush University Medical Center (Rush) for the construction of a new president’s house, confirming in writing that the pledge would be paid upon his death as a debt if unfulfilled.
- Rush, relying on Sessions’ pledge, constructed the “Robert W. Sessions House” on its campus at a cost exceeding $1.5 million, using it as a residence and event center, and Sessions attended its dedication.
- Sessions did not make any payments to Rush toward the $1.5 million pledge during his lifetime.
- In February 2005, Sessions was diagnosed with late-stage lung cancer and subsequently blamed Rush; on March 10, 2005, he executed a new will revoking previous wills and codicils, making no provision for Rush’s pledge.
- Six days before his death on April 25, 2005, Sessions created a second trust and made various gifts, ostensibly reducing the assets of his estate.
Procedural Posture:
- On December 15, 2005, Rush University Medical Center (Rush) filed an amended claim in the probate division of the circuit court of Cook County against Robert W. Sessions’ estate to enforce the $1.5 million pledge.
- On August 31, 2006, the circuit court granted summary judgment in favor of Rush on its claim against Sessions’ estate.
- Sessions’ estate appealed, and on December 3, 2007, the appellate court affirmed the summary judgment in favor of Rush.
- On April 4, 2006, in a supplemental proceeding, Rush filed a three-count verified complaint against the trustees of the Sessions Family Trust (created in 1994), seeking to reach the trust assets to satisfy the debt owed by Sessions.
- The Attorney General of Illinois intervened in the dispute, filing a joinder in Rush’s pleadings.
- The circuit court entered summary judgment in Rush’s favor on Count III of the complaint, finding that the Sessions Family Trust was void as to Rush’s $1.5 million judgment and liable for payment.
- The trustees appealed the circuit court’s summary judgment on Count III to the Appellate Court for the First District, arguing that the common law principle was supplanted by the Uniform Fraudulent Transfer Act.
- The appellate court reversed the circuit court’s order of summary judgment on Count III, ruling that the common law cause of action was abrogated by the enactment of the Uniform Fraudulent Transfer Act.
- Both Rush and the Attorney General filed petitions for leave to appeal with the Illinois Supreme Court, which were allowed and consolidated for review.
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Issue:
Does the Illinois Uniform Fraudulent Transfer Act abrogate the common law rule that a self-settled spendthrift trust, created by a settlor for their own benefit with a spendthrift provision, is void as to the settlor's existing and future creditors, thereby preventing a creditor from reaching the trust's assets to satisfy a debt, even if the debt became due after the settlor's death?
Opinions:
Majority - Justice Thomas
No, the Illinois Uniform Fraudulent Transfer Act (UFTA) does not abrogate the common law rule that a self-settled spendthrift trust is void as to existing and future creditors. The court found no express legislative intent to abrogate the common law nor an "irreconcilable repugnancy" between the UFTA and the common law rule. The UFTA, in section 11, explicitly states that common law principles, including those relating to fraud, supplement its provisions unless displaced. The majority reasoned that the UFTA and the common law rule operate in different, yet supplementary, spheres; the UFTA focuses on actual fraudulent transfers, while the common law targets the inherent injustice of a settlor retaining beneficial interest in a trust while shielding assets from creditors, regardless of fraudulent intent. The common law prevents a person from using a trust to secure personal benefit while evading present and future debts. Furthermore, the court cited section 2-1403 of the Code of Civil Procedure, which has long exempted self-settled trusts from protection against judgment execution, indicating a legislative intent to preserve the common law rule. The court rejected the argument that the common law rule only applies to a settlor’s “lifetime interest” or requires the creditor to be a “judgment creditor” before the settlor’s death, affirming that a settlor’s interest includes all principal and income distributable to them and that the policy of being "just before he is generous" extends to preventing heirs from benefiting over creditors. Rush was deemed a creditor because Sessions incurred the obligation during his lifetime.
Analysis:
This decision significantly clarifies the relationship between statutory law and common law in Illinois, emphasizing that common law principles persist unless explicitly and clearly abrogated by statute. It reinforces the long-standing legal principle that individuals cannot use self-settled spendthrift trusts as a shield to protect their assets from creditors while simultaneously retaining the ability to benefit from those assets. The ruling has a substantial impact on estate planning and asset protection strategies, ensuring that such trusts remain vulnerable to legitimate creditor claims, both before and after the settlor's death, thereby upholding the policy that debtors must be just before they are generous.
