Is there a Valid Trust?

Question 1

What is required for a valid trust? (5)

Answer 1

A valid trust requires (1) intent, (2) settlor capacity, (3) identifiable trust property (res) in existence, (4) ascertainable and definite beneficiary, and (5) valid trust purpose.

Question 2

Are trust funds transferrable by beneficiary?

Answer 2

Yes. Trust interests may be freely transferrable by beneficiary (voluntary alienation)

Question 3

Are trust funds subject to creditors?

Answer 3

Yes. May be subject to claims of the beneficiary’s creditors (involuntary alienation)

Exceptions: Lmiting trust provisions; such as 1) Spendthrift, 2) Discretionary, 3) Support Trust

Question 4

What type of trusts limit a creditor or beneficiary from accessing trust assets?

Answer 4

1) Spendthrift Trust, 2) Discretionary Trust, 3) Support Trust

Question 5

What is a spendthrift trust?

Answer 5

A spendthrift trust restraints alienation, preventing beneficiary from transferring interest and creditors from accessing.

Question 6

When can a creditor reach trust funds in a spendthrift trust?

Answer 6

Creditor can reach spendthrift trust funds once beneficiary receives payment. Creditor may attempt to collect directly from beneficiary after payment is made.

Question 7

Is there an exception to restraints on involuntary alienation (spendthrift clauses, discretionary trusts, support trusts)?

Answer 7

Yes, Preferred Creditors.

Question 8

What scenarios can preferred creditor access trust funds, irrespective of trust type?

Answer 8

1) Tort judgment creditors (spendthrift is to prevent bad spending, not from tortious conduct)

2) Someone a beneficiary is required to support (via alimony support/child support)

3) Creditor who supplies necessities of life (food, clothing, shelter) to beneficiary or family

4) Government (claim for back taxes, tax liens)

5) Victim of felony committed by beneficiary to the extent is equitable and reasonable

6) If settlor is the beneficiary, spendthrift provision is invalid (can’t protect self from creditors)

Question 9

What is a discretionary trust?

Answer 9

Grants absolute discretion to trustee to make distributions as he sees fit. The beneficiary, his assignee, nor his creditors can compel payment (unless settlor is the beneficiary of discretionary trust)

Question 10

What is a support trust?

Answer 10

Directs the trustee to pay only as is necessary for the beneficiary’s support. Voluntary and involuntary alienation are both prohibited (unless creditor is Preferred Creditor - see supra)