Beneficiaries Flashcards
Transfer of Beneficiaries’ Interests
Alienability in general
- as a gen rule, beneficiaries’ interests are both voluntarily and involuntarily alienable as a property right
Voluntary alienation = beneficiary is allowed to transfer his/her right to future payments of a trust
Involuntary alienation = involuntary alienation allows creditor to attach to beneficiary’s rights to future payments by obtaining a judgment
What is voluntary alienation?
for trust beneficiary
beneficiary is allowed to transfer his/her right to future payments of a trust
What is involuntary alienation?
for trust beneficiary
involuntary alienation allows creditor to attach to beneficiary’s rights to future payments by obtaining a judgment
Spendthrift Trusts
= restraint on alienation (both voluntary and involuntary)
designed to protect beneficiary’s future income stream by prohibiting alienation on beneficiary’s rights to future payments
- voluntary permitted while involuntary prohibited = invalid
- exceptions = preferred creditors, settlor as beneficiary
• surplus = income exceeds beneficiary’s station in life
- any creditor may attach
- station in life = std of living
What are the exceptions to spendthrift trusts?
Ct will disregard a spendthrift clause and allow a preferred creditor to attach to the beneficiary’s future income or principal payments from the trust.
Preferred Creditors
- gov (i.e. taxes)
- dependent (i.e. child support/alimony payments)
- persons supplying necessities (food, clothing, shelter, and medical care)
- tort creditors (tort (involuntary creditors) on theory that they could not protect themselves against beneficiary’s tortious conduct)
Settlor as beneficiary
- involuntary alienation = invalid
- voluntary alienation - courts are split
• maj view = ignore spendthrift provision
• min view = uphold spendthrift provision
Discretionary Trusts
- trustee has discretion to pay/withhold corpus and/or proceeds of trust
- voluntary alienation = same rights as beneficiary
- involuntary alienation = same rights as beneficiary
- settlor as beneficiary = creditors may compel payments
Support Trusts
Trustee distributes only in amount necessary for beneficiary’s support
beneficiary’s other income considered? = depends on settlor’s intention
voluntary alienation = prohibited
involuntary alienation = prohibited, EXCEPTION: preferred creditors
Voluntary alienation for support trusts
prohibited
Involuntary alienation for support trusts
prohibited
EXCEPTION: preferred creditors
Can a beneficiary’s income be considered for support trusts?
Depends on settlor’s intention
Life Tenant
= income and expenses
What is considered income for Life Tenants?
income = money/property that fiduciary receives as current return from a principal asset
- cash receipts from entities
- insurance proceeds - insuring trustee against lost of occupancy or other use by an income beneficiary, loss of income, or loss of profits from biz
- 10% of deferred compensation
- 10% of mineral, water, other natural interest (exception: renewable water rights)
What is the exception for 10% of mineral, water, and other natural interest for income for life tenants?
renewable water rights
What are expenses for Life Tenants?
- 1/2 of trustee’s and advisor’s compensation
- 1/2 of accounting and judicial expenses
- interest on debt
- minor repairs
- insurance premiums
- recurring taxes assessed against principal
What is a remainderman?
= principal and expenses
What is the principal allocated to Remainderman?
= property held in trust for distribution to a remainder beneficiary when the trust terminates
(1) receipts from entities (liquidating distributions, capital gains income, property other than money - stock splits/dividends)
(2) insurance proceeds - proceeds of a life ins policy/other K in which the trust/trustee is named as beneficiary, including a K that insures the trust/trustee against loss for damage to, destruction of, or loss of title to a trust asset
(3) principal assets - money/ other property received from the sale, exchange, liquidation, or change in form of a principal asset, including realized profit (eminent domain awards)
What are expenses allocated to Principal (Remainderman)?
- 1/2 of trustee’s and advisor’s compensation, accounting, and judicial expenses
- 1/2 of accounting and judicial expenses
- debt principal
- major repairs/improvements
- insurance premiums
- estate taxes
- environmental matters
For spendthrift trusts, is voluntary permitted while involuntary prohibited?
No.
trust provisions that allow a beneficiary to voluntarily transfer her interest but prevent creditors from reaching the beneficiary’s interest are invalid
EXCEPTIONS:
(1) Preferred Creditors
- gov (i.e. taxes)
- dependent (i.e. child support/alimony payments)
- persons supplying necessities (food, clothing, shelter, and medical care)
- tort creditors (tort (involuntary creditors) on theory that they could not protect themselves against beneficiary’s tortious conduct)
(2) Settlor as beneficiary
- involuntary alienation = invalid
- voluntary alienation - courts are split
• maj view = ignore spendthrift provision
• min view = uphold spendthrift provision
Surplus for Spendthrift Trusts
surplus = income exceed’s beneficiary’s station in life (std of living)
any creditor may attach
The concept of surplus in some jxns allows creditor (not just preferred) to attach future payments to the beneficiary, despite a spendthrift clause, where income to be paid exceeds what is needed to maintain the beneficiary’s “station in life”
station in life = std of living
-beneficiary’s condition in life, her health, and other circumstances as well as the condition of her family
Who are preferred creditors?
for spendthrift trusts
- gov (i.e. taxes)
- dependent (i.e. child support/alimony payments)
- persons supplying necessities (food, clothing, shelter, and medical care)
- tort creditors (tort (involuntary creditors) on theory that they could not protect themselves against beneficiary’s tortious conduct)
Trustee’s duty not to discriminate between beneficiaries
as b/w present and future beneficiaries
Trustee’s adjustment powers
to carry out the purpose of the trust the trustee may adjust b/w income and principal in diff ways
