## Facts

- Ruth Clanton created an inter vivos trust with her daughter, Katherine Wells.
- Under the trust agreement, Clanton was the settlor and retained a lifetime beneficial interest in the trust property.
- Wells was named trustee, and the trust provided that, upon Clanton’s death, Wells would become the trust’s sole beneficiary.
- On the same day the trust was executed, Clanton signed a warranty deed conveying title to the Five Points Shopping Center to Wells in her capacity as trustee.
- About a year after Clanton’s death, Wells filed a Chapter 11 bankruptcy case; the case was later converted to Chapter 7.
- Charles Grant was appointed as the Chapter 7 trustee.
- Grant filed an adversary proceeding contending that Five Points was property of the bankruptcy estate because (1) the trust terminated at Clanton’s death, and (2) when Wells became both sole trustee and sole beneficiary, the doctrine of merger combined legal and equitable title in Wells as fee simple owner.
- Wells opposed the requested relief, arguing that the trust terms permitted her, as the post-death beneficiary, to continue the trust if she chose, so the property should remain held in trust rather than in the bankruptcy estate.

## Issues

1. Whether, upon the settlor’s death, the trust ended and Wells’s legal title as trustee and equitable title as sole beneficiary merged, leaving Wells with fee simple ownership of Five Points.
2. Whether trust language allowing post-death continuation (if elected by Wells) prevented termination and merger, such that Five Points would remain held in trust and outside the bankruptcy estate.
3. Whether, under applicable trust law, the doctrine of merger applies when one person becomes both the sole trustee and the sole beneficiary of the same trust property.

## Decision

- The court ruled for the Chapter 7 trustee, Grant.
- The court concluded that, after Clanton’s death, Wells held both legal title (as trustee) and the entire beneficial interest (as sole beneficiary) in Five Points.
- Applying the doctrine of merger, the court determined that the trust could not continue with the same person holding the full legal and equitable interests; the interests united, leaving Wells with fee simple ownership.
- Because Wells owned Five Points outright at the relevant time, the property was included in the bankruptcy estate under 11 U.S.C. § 541 and subject to administration by the Chapter 7 trustee.

## Legal Principles

- Whether a debtor has a legal or equitable interest in property is determined by nonbankruptcy law (including state trust law); whether that interest becomes part of the bankruptcy estate is determined by 11 U.S.C. § 541.
- Under the doctrine of merger, a trust fails (or terminates as to the affected property) when the entire legal title and the entire beneficial interest become vested in the same person, so long as the interests are fully coextensive.
- When merger applies, legal and equitable title unite in the holder, and the holder takes the property outright (typically as a fee simple interest for real property).
- A bankruptcy trustee may seek declaratory relief in an adversary proceeding to determine whether disputed property is property of the estate and therefore available for liquidation and distribution.

## Conclusion

Grant v. Wells (In re Wells) held that when the settlor died and the debtor became both sole trustee and sole beneficiary of the trust holding the Five Points Shopping Center, the trust could not continue as a separate arrangement because legal and equitable title merged in the debtor; as a result, the shopping center was property of the Chapter 7 bankruptcy estate under § 541.


Grant v. Wells (In re Wells), 259 B.R. 776 (2001)