The Clause the Debtor Could Not Waive.

On 21 May 2026, a division of the Colorado Court of Appeals reversed the whole thing. Bank of Colorado v. Lebsock, 2026 COA 38, No. 24CA2217 (Colo. App., announced 21 May 2026) (Div. II, Fox, J.; Kuhn and Sullivan, JJ., concurring), on appeal from Logan County District Court No. 20CV30064; judgment reversed and remanded with directions. The bank got nothing it did not already have. Not because the debtor was clever, and not because anyone had moved a dollar out of reach — but because, seven years earlier, someone else’s lawyer had written twenty-nine words into a trust instrument.

Lebsock is a small case with a large lesson. It is worth reading closely for what it says about how third-party trusts are drafted, who is allowed to settle them, and — most usefully — precisely where their protection ends.

In 2019, Janice M. Lebsock settled the Janice M. Lebsock Irrevocable Income-Only Trust. She and her daughter Sandra served as cotrustees. During Janice’s lifetime she was the sole beneficiary, entitled to discretionary distributions of income for her “care and well-being.” Section 2.2 directed that on her death the trustees distribute the remaining principal and income to her children as she might appoint by will, and, in default of appointment, to her three living children — Gregory, Sandra, and David — in equal shares, per stirpes. Lebsock, ¶ 2.

Section 4.2 carried the spendthrift restraint:

That is the entire fortification. No offshore situs, no protector, no flight clause. Ordinary domestic drafting, executed at an ordinary moment, by a settlor with no creditor problem of her own.

David’s troubles were his own and they arrived later. The bank sued in 2020 to foreclose on collateral and collect the defaulted loans; David petitioned for bankruptcy in February 2022; the bankruptcy trustee and the bank settled on terms permitting stay relief. When David objected in the bankruptcy court that the bank had no valid security interest in the trust, the bank replied that he lacked standing to be heard, and the bankruptcy court agreed — holding that he lacked prudential bankruptcy standing to oppose stay relief and, in its own words, not addressing “the parties’ arguments about the Bank’s security interest in the Trust.” Lebsock, ¶¶ 3–6. Janice died on 8 December 2024 — section 2.3 of the trust required the trustees to liquidate its real estate within six months of her death — and David’s contingent one-third became an entitlement. Id. ¶ 12 & n.7.

The bank’s theory had a certain rough logic. David pledged his general intangibles. He stipulated to the receiver taking them. Whatever interest he had in his mother’s trust was, on that view, swept up with everything else.

The division’s answer goes to the heart of what a spendthrift clause is for. Under section 15-5-502(3) of the Colorado Uniform Trust Code, “[a] beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided [by statute], a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.” § 15-5-502(3), C.R.S. 2025, quoted at Lebsock, ¶ 42; see also §§ 15-5-501, 15-5-502(1)–(2), C.R.S. 2025. The restraint runs in both directions — against involuntary transfer and against the beneficiary’s own voluntary act. The court held that David “could not legally and, therefore, did not, validly assign his future beneficial interest” in the trust to his creditors, and that the spendthrift provision “prevented David from alienating his interest in the Trust to his creditors during Janice’s life.” Lebsock, ¶¶ 47, 50; see also id. ¶ 39.

This is the point most often lost in the marketing of asset protection. A properly drafted third-party spendthrift trust does not merely resist creditors. It resists the beneficiary. Colorado has understood this for nearly a century: such a trust exists “to provide a fund for the maintenance of the beneficiary, and at the same time to secure it against his improvidence or incapacity.” In re Nicholson’s Estate, 93 P.2d 880, 883–84 (Colo. 1939), quoted at Lebsock, ¶ 7 n.4. David’s improvidence was exactly what the clause was built to survive — and it survived it. He could sign every document the bank put in front of him, and the interest still was not his to give.

Note what carried the day, because it was not cleverness. The trust was seasoned: settled in 2019, a year before the forbearance agreement and three before the bankruptcy, at a time when nothing about David’s creditors was any part of the design. It was irrevocable. It was independently administered by cotrustees who were not the debtor. And David’s interest was contingent and remote — he held no control, no power to compel, and nothing he could have withdrawn had he wished to. There was nothing to unwind, because nothing had been improvised.

The bank had a second, more technical argument: Article 9 of the Uniform Commercial Code gave it a superior interest in David’s expectancy, perfected on attachment. Lebsock, ¶ 52 n.13 (bank invoking §§ 4-9-101 to -809, C.R.S. 2025). The division dispatched it in a footnote that deserves more attention than its typeface suggests. Colorado courts apply the Colorado Uniform Trust Code, not the UCC, “to determine the legal effect of a trust instrument,” on the settled principle that a specific statute controls over a general one where the two conflict. Id. ¶ 52 n.13, citing Casey v. Colo. Higher Educ. Ins. Benefits All. Tr., 2012 COA 134, ¶ 20, and Delta Sales Yard v. Patten, 892 P.2d 297, 298 (Colo. 1995).

For anyone advising lenders or borrowers, that sentence is the practical holding. A blanket lien on “general intangibles” is drafted to catch everything — and it does not catch a spendthrift interest, because the question of what a beneficiary owns and may transfer is answered by trust law before Article 9 is ever reached. A lender who wants recourse against a borrower’s expected inheritance cannot get it by expanding the collateral description. There is nothing there to take.

The district court’s second error was procedural, and it is the trap most likely to catch a trustee who is not paying attention. Having lost in the bankruptcy court, David was told he could not raise the spendthrift issue in state court at all: the stay relief order, the district court held, was res judicata, and David was judicially estopped besides.

The division rejected both. Relief from the automatic stay “is not a final adjudication of a party’s ownership interest in property because it requires a party to show only a colorable claim of a lien on estate property.” Garrett v. BNC Mortg., Inc., 929 F. Supp. 2d 1120, 1124 (D. Colo. 2013), quoted at Lebsock, ¶ 16. Stay proceedings determine only whether the movant has a colorable claim, “which is then fully adjudicated in the state court.” In re Thomas, 469 B.R. 915, 922–23 (B.A.P. 10th Cir. 2012), quoted at Lebsock, ¶ 22. Because the bankruptcy court “did not, and indeed, could not adjudicate the substantive merits” of the bank’s claim, its order was no judgment on the merits — and it had been premised largely on David’s lack of standing in any event, which is likewise not a merits ruling. Lebsock, ¶¶ 16–17, citing Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 35 (1st Cir. 1994). On claim preclusion, the division drew the distinction cleanly: “there is a difference between the evidence necessary to show a colorable claim of a lien and the evidence necessary to show a valid, enforceable security interest.” Id. ¶ 24; see id. ¶¶ 20, 25. The judicial estoppel ruling failed too, both because there was no evidence of an intent to mislead and because the argument was a legal position, to which the doctrine does not ordinarily apply. Id. ¶¶ 33–38.

There is a related point of federal law worth committing to memory. Under 11 U.S.C. § 541(c)(2), an anti-alienation provision in a valid spendthrift trust is an enforceable restriction on transfer, and the trust assets are therefore excluded from the bankruptcy estate altogether. Lebsock, ¶ 31, quoting In re Coumbe, 304 B.R. 378, 382 (B.A.P. 9th Cir. 2003); see In re Amerson, 839 F.3d 1290, 1300 (10th Cir. 2016). The interest was never property of the estate. The settlement between the bank and the bankruptcy trustee could not convey what the trustee never held, and — as the division observed — had no effect on nonparties, including Janice and the trustees she designated. Id. ¶ 51; see § 13-51-115, C.R.S. 2025 (“[N]o declaration shall prejudice the rights of persons not parties to the proceeding.”).

One fact drives the outcome and appears nowhere in the legal analysis: Sandra intervened.

The district court had ordered her, as trustee, to pay David’s portion into the court registry. She did not comply and litigate later; she intervened in the replevin action and sought declaratory relief that the trust contained a valid spendthrift provision, that David could not and did not validly assign his interest, and that the bank could collect only from David directly after a distribution was actually made to him. Lebsock, ¶ 8. Every declaration she asked for, she eventually got — and the division reversed the registry order that had contradicted them, calling the district court’s simultaneous conclusions “irreconcilable.” Id. ¶¶ 11, 47. The Colorado Bar Association’s Trust & Estate Section appeared as amicus in support of the trustee; the Colorado Bankers Association appeared in support of the bank.

Independent administration is usually described as a defensive virtue, the thing that keeps a trust from being called a sham. Lebsock shows the affirmative side. A trustee genuinely independent of the debtor-beneficiary is a party with her own standing, her own counsel, and her own institutional interest in enforcing the instrument’s terms. A trustee who is the debtor in a different hat has none of that. The structural feature that makes a trust respectable is the same feature that gives it someone willing to defend it.

Candour is more useful here than enthusiasm, and the opinion supplies the limits itself.

Protection ends at distribution. Once trust funds have been distributed to the beneficiary, they are within the reach of creditors. In re Estate of Beren, 2013 COA 166, ¶ 31, cited at Lebsock, ¶ 45; see Restatement (Third) of Trusts § 58 cmt. d(2) (A.L.I. 2003). The division was explicit in remanding: the bank cannot preferentially stake a claim in David’s share, but “once the trustee distributes David’s share of Trust funds, the Bank and other creditors are similarly situated,” and to the extent their debts were not discharged in bankruptcy they may pursue David individually. Lebsock, ¶ 53. The bank lost its priority. It did not lose its claim.

Statutory exceptions survive the clause. Colorado makes spendthrift provisions unenforceable against a child who is an obligee under a support order and against a judgment creditor who has provided services for the protection of the beneficiary’s interest in the trust. § 15-5-503(2), C.R.S. 2025, discussed at Lebsock, ¶ 44; see also § 15-5-503(3), C.R.S. 2025.

A mandatory distribution left unpaid can be reached. Section 15-5-506(2) permits a creditor to reach a mandatory distribution of income or principal — including a distribution on the trust’s termination — where the trustee has not made it within a reasonable time after the designated distribution date. The division cited the provision without applying it, noting that the statutory exceptions were “not at issue here.” § 15-5-506(2), C.R.S. 2025, cited at Lebsock, ¶ 45; id. ¶ 44. It is the obvious next front in any case of this shape. A trustee holding an overdue mandatory distribution is not sitting behind the same wall as a trustee exercising genuine discretion.

And this says nothing about self-settled trusts. Janice settled the trust; David benefited from it. That is the entire reason it worked. Colorado law does not permit a settlor to create a valid spendthrift trust for his or her own benefit — § 38-10-111, C.R.S. 2025; In re Cohen, 8 P.3d 429, 432–33 (Colo. 1999), both cited at Lebsock, ¶ 42 n.11 — and the division flagged the rule in a footnote precisely because the case did not implicate it. This is where careless reading of Lebsock becomes dangerous. The protection here belongs to the generation that did not create the trust.

Which brings us to the design flaw sitting in plain sight in an otherwise successful instrument.

Section 2.2 directed an outright distribution to the children on Janice’s death, in equal shares, per stirpes. That mandatory outright gift is the moment the wall comes down. David’s interest is untouchable while the trustees hold it and fully exposed the instant it lands in his hands. The trust protected him for the years he did not need protecting and stops protecting him at the one moment his creditors are waiting.

An instrument drafted with the next generation’s exposure in mind does not distribute outright at the settlor’s death. It continues each child’s share in a discretionary trust for that child’s lifetime, administered by an independent trustee, with the spendthrift restraint intact — so that the answer to a creditor is not “not yet” but “not ever, except as the trustee in its discretion decides.” The section 2.2 power of appointment, permitting appointment by will “to or for the benefit of [Janice’s] children or their descendants,” was in principle a mechanism for achieving exactly that. Lebsock, ¶ 2; see id. ¶ 12. The opinion records that the parties did not cite Janice’s final will, and this note takes no view on how the power was in fact exercised; the observation is one of instrument design only. The lesson is not that Janice’s plan failed; it did not. The lesson is that a plan can win every issue on appeal and still hand the creditor a date on the calendar.

Lebsock will be read by lenders as a warning about collateral descriptions, and by trust practitioners as a reassuring confirmation that Colorado means what its statute says. Both readings are right. The reading that matters for planning is narrower and older.

Nothing about this outcome was improvised. The trust was settled years before the trouble, by someone else, in irrevocable form, under independent administration, with a plainly drafted restraint on alienation — and it held against a signed pledge, a receiver, a stipulated order, a bankruptcy settlement, and a district court that had already ruled the other way. Structures built on a clear day do that. Structures built in the rain produce evidence instead.

The only question left for the family is what happens on the day the trustee writes the cheque. That question is answered at the drafting table, years earlier, or it is not answered at all.

This note is general commentary for informational purposes and is not legal advice for any specific matter. Outcomes in this area turn closely on the terms of the instrument, the facts of the beneficiary’s situation, the timing of transfers, and the governing jurisdiction; Colorado’s Uniform Trust Code provisions discussed here differ in material respects from those of other states and of offshore jurisdictions.