Beneficiary and Creditor Rights; Modification and Termination

Question 1

Income Beneficiaries

Answer 1

Receive income from the trust

Question 2

Remainder Beneficiaries

Answer 2

Entitled to the trust principal upon termination of the trust

Question 3

Creditors

Answer 3

A beneficiaries creditors may reach trust principal or income only when those amounts become payable to the beneficiary.

Question 4

Alienation

Answer 4

A beneficiary’s equitable interest in trust property is freely alienable unless a statute or trust instrument restricts this right.

Question 5

Support Trusts

Answer 5

• Directs the trustee to pay income or principal as necessary to support the beneficiary.
• Creditors cannot reach the assets, except to the extent that a provider of a necessity can be paid directly by the trustee.

Question 6

Discretionary Trust

Answer 6

• The trustee is given complete discretion regarding whether to apply payments to the beneficiary.
• If discretion is exercised, creditors have the same rights as beneficiaries, unless a spendthrift restriction exists.

Question 7

Mandatory Trust

Answer 7

The trustee has no discretion; the trust governs when property is distributed.

Question 8

Spendthrift Trust

Answer 8

• Expressly restricts beneficiaries powers to voluntarily or involuntarily transfer their equitable interest.
• Creditors usually cannot reach the trust, unless money is owed for child or spousal support, basic necessities, or tax liens.

Question 9

Settlor’s power to revoke or amend

Answer 9

Trusts are presumed revocable and amendable unless there is a writing to the contrary.

Question 10

Express revocation in writing or by physical act

Answer 10

• Effective when the actual event occurs if there is intent along with the event.

Question 11

Automatic termination

Answer 11

Expires by its own terms, there is no purpose left, or the purpose becomes unlawful.

Question 12

Modification by:

Beneficiaries

Answer 12

• A noncharitable irrevocable trust can be terminated or modified by consent of all beneficiaries if a court concludes that continuance is not necessary to achieve any material purpose of the trust.
• If the settlor consents with all beneficiaries, then it can be terminated even with a material purpose.

Question 13

Modification by:

Trustee

Answer 13

• Generally, a trustee does not have the power to terminate the trust, unless the trust contains express termination provisions.
• Removal of Trustee: a court can remove a trustee if the purpose of the trust would be frustrated by the trustee’s continuance in office or violation of a duty.

Question 14

Modification by:

Court

Answer 14

• Unanticipated changes: a court can modify the administrative or dispositive terms of a trust or terminate it if because of circumstances not anticipated by the settlor, modification or termination would further the purpose of the trust.