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Trust Owner Was Unjustly Enriched by Distributions, Except for Portion Used to Pay Taxes

(Parker Tax Publishing July 2022)

The Sixth Circuit affirmed in part a district court's holding that the grantor of a revocable trust was unjustly enriched when, in the course of a dispute with a lender over a loan in default, he took distributions of hundreds of millions of dollars from the trust. However, the Sixth Circuit reversed the district court on the issue of whether the grantor was unjustly enriched by the amount of the distributions he used to pay taxes on income earned by LLCs which were held by the trust after finding that he was not personally liable for the taxes. JPMorgan Chase Bank, N.A. v. Winget, 2022 PTC 188 (6th Cir. 2022).


For the past fifteen years, JPMorgan Chase Bank (Chase) has been trying to collect a nearly half-a-billion dollar debt that Larry Winget and the Larry J. Winget Living Trust (the Trust) guaranteed.

Winget's holding company, Venture, obtained a $450 million loan from Chase to buy a European company. But that company eventually became insolvent, triggering default and acceleration clauses in the loan agreement. As the administrative agent for the lenders, Chase required new collateral to prevent acceleration of the debt. So Winget agreed to guarantee the loan both in his individual capacity and as a representative of the Larry J. Winget Living Trust. Winget is the Trust's settlor (as he created the trust), trustee, and sole beneficiary. The guaranty agreement limited Winget's personal liability to $50 million but did not similarly limit the Trust's liability.

Venture filed for bankruptcy in 2003. This triggered a default and the debt became due. Chase sued both Winget and the Trust to recover the debt. Winget paid $50 million and no longer owes Chase any money in his personal capacity. But the Trust is liable for the rest of the debt, which now amounts to more than $750 million.

Winget, as trustee of the Trust, has resisted paying the Trust's debt at every step. In 2014, nearly six years after Chase sued to recover the debt, Winget revoked the Trust and removed all trust assets. According to Winget, the trust instrument gave him the power to revoke or amend the Trust by his act alone. Winget kept the revocation secret for over a year. During this time, a district court held that the Trust owed Chase nearly half-a-billion dollars under the guaranty agreement. And the parties were actively litigating whether Chase could use the trust assets - which, unbeknownst to anyone but Winget, no longer existed - to satisfy that debt.

Winget came clean when he sought a declaratory judgment that would establish that, given the revocation, Chase had no further recourse against him or the assets that were once held in the Trust. Chase counterclaimed, arguing that the revocation was a constructively fraudulent transfer under the Michigan fraudulent transfer statute. The district court agreed with Chase and granted its motion for judgment on the pleadings. Winget didn't appeal this ruling. Rather, he rescinded his revocation, retitling to the Trust all property that it held at the time of the revocation.

But Winget had one more card to play. Before he rescinded the revocation, various LLCs that had been held in the Trust (until Winget revoked it) distributed hundreds of millions of dollars in cash and promissory notes to Winget. When Chase learned about these distributions, it sued Winget for unjust enrichment. Chase moved for summary judgment and sought a constructive trust over the distributions. The district court granted the motion and ordered Winget to place the distributions in a constructive trust.

Winget appealed the district court's ruling to the Sixth Circuit. He argued that there was no fraudulent transfer because, as the Trust's settlor, he owned all of the property in the Trust and therefore, the revocation did not "transfer" anything. Winget also argued that he was not unjustly enriched by the amount of the LLC cash distributions that he used to pay taxes on the LLCs' income (about $79 million). He contended that this amount was always "earmarked" for taxes and that if Chase recovered that amount, it would receive a greater benefit than he retained, violating the purpose of restitution.


The Sixth Circuit affirmed the district court's ruling that Winget's revocation of the Trust was a fraudulent transfer. The court found that under the Michigan fraudulent transfer statute, the revocation was a "transfer" because it had the effect of placing assets beyond Chase's reach. The court further found that the transfer was constructively fraudulent because (1) Chase's claim to the assets arose before the transfer, (2) the Trust was insolvent after the revocation, and (3) the Trust did not receive reasonably equivalent value in exchange for the transfer.

Next, the court held that Winget was unjustly enriched by the cash and notes he received from the LLCs, but agreed with Winget that he was not unjustly enriched with respect to the $79 million he paid in taxes on the LLCs' income. The court explained that to resolve this issue, it had to determine who was liable for the taxes on the LLCs' income. If Winget was personally liable, he would have had to pay the taxes himself, leaving the trust assets to repay Chase. But if the Trust was liable, it would have paid for the taxes out of its own assets, and that in turn would have diminished the assets available to Chase. According to the court, Winget was unjustly enriched only if the former was true.

The court found that, as the settlor of the Trust, Winget was treated under Code Sec. 676(a) as the owner and was liable for the income taxes of the Trust - but only so long as his power to revoke the Trust was "exercisable." However, the court found that Winget's power to revoke was likely not exercisable, since his ability to revoke was limited by the Trust's obligation to repay Chase. The court noted that, indeed, when Winget exercised his right to revoke, it resulted in a fraudulent transfer. Therefore, the court concluded that "the typical rules for revocable trusts may not apply."

It was Chase's burden, the court explained, to show that Winget was unjustly enriched by the full amount of the cash distributions, including the $79 million he paid in taxes. To meet that burden, the court said that Chase had to prove that Winget was personally liable for the Trust's taxes and thus could not pay for them out of the Trust's assets. The court concluded that Chase did not meet that burden and therefore, the $79 million which Winget paid in taxes should have been excluded from Chase's relief.

Observation: In a dissenting opinion, one judge said that the majority's conclusions proceeded from an earlier, incorrect holding that Winget's revocable Trust was a separate legal entity from Winget and that the Trust, not Winget, was the owner of the assets. The dissenting judge therefore asserted that Winget's revocation of the Trust was not a fraudulent transfer and that Winget was personally liable for the taxes incurred by the Trust.

For a discussion of a grantor's power to revoke a trust, see Parker Tax ¶56,125.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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