Beneficiary/Creditor Rights to Distribution Flashcards
Who has the right to alienation?
A beneficiary’s equitable interest in trust property is freely alienable unless a statute or trust instrument limits this right.
What is a support-trust?
Can creditors take assets under a support-trust?
Directs the trustee to pay income or principal as necessary to support the trust beneficiary and maintain lifestyle.
Creditors cannot reach these assets UNLESS they’re providing a necessity to the beneficiary (trustee tends to pay creditors directly)).
What is a discretionary trust?
Can creditors take assets under a support-trust?
The trustee is given complete discretion regarding whether or not to apply payments of income or principal to the beneficiary.
Creditors have the same rights as a beneficiary if the trustee exercises discretion to pay them.
What is a mandatory trust?
The trustee has no discretion
-> the trust document explains in detail how and when trust property is to be distributed
What is a spendthrift trust?
Can creditors take assets under a support-trust?
Expressly restricts the beneficiary’s power to voluntarily or involuntarily transfer his equitable interest in the trust to another.
Creditors usually cannot reach the trust interest if the governing instrument contains a spendthrift clause UNLESS creditors were used for
-> child support or spousal support
-> tax lien holders
AND
-> sometimes basic necessities providers (e.g. hospital bills)
