Restraints on Alienation & Rights of Creditors

Question 1

Spendthrift Trust

Answer 1

prevents the transfer of a beneficiary’s interest in a trust

valid ONLY IF it restrains BOTH voluntary and involuntary transfers

DO NOT provide protection for mandatory distributions of trust property

Question 2

A creditor CANNOT reach a beneficiary’s spendthrift interest, EXCEPT:

Answer 2

1. judgment creditor who provided services for the protection of a beneficiary’s interest in the trust;
2. creditor who furnished necessities (in some states only);
3. order for child support or alimony;
4. claim be a state or federal government; OR
5. self-settled trust

Question 3

Rights of Creditors (Spendthrift Provision)

Answer 3

creditor can only collect from the beneficiary AFTER a payment is made unless an exception applies

Question 4

Rights of Creditors (Discretionary Trust)

Answer 4

a creditor CANNOT compel a distribution subject to the trustee’s discretion