Transfer and Modification of Beneficiary Trust Interests

Question 1

General Rule

Answer 1

Equitable Interests are Presumed Alienable

Question 2

Spendthrift Trusts

Answer 2

Trust where:
1. Beneficiary may not transfer interest; and
2. creditors cannot attach beneficiary’s interest until trustee pays beneficiary (trustee generally pays expenses directly)

Question 3

Limits on Spendthrift Trust

Answer 3

1. Settlor cannot be beneficiary
2. Does not apply to preferred creditor
3. Does not apply to a judgment creditor from a tortious act of beneficiary

Question 4

Support Trust

Answer 4

Trust where use is restricted to suppor the beneficiary –> can be mandatory or discretion

Trust that contains language that speifies tha the income or principal of the trust is only to be used for the maintenance, **support, health, or educational needs ** of the beneficiary

Standard of Support: Beneficiary’s accustomed standard prior to becoming beneficiary examiend on case-by-case basis

Question 5

Discretionary Trusts

Answer 5

Contain language that gives the trustee the absolute sole discretion to determine when, if ever, funds will be paid and how much money will be paid

Beneficiary has an expectancy and creditors can’t reach it

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Question 6

Methods of Modification and Termination

Answer 6

1. By Terms of Trust
2. By Settlor unless expressly irrevocable
3. By Beneficiaries with (i) consent of all beneficiaries and (ii) will not interfere with material purpose based on settlor’s intent
4. By Court or Operation of Law

Question 7

Termination of Spendthrift Trust

Answer 7

Not allowed without settlor’s consent