Transfer of B's Interest Flashcards
Voluntary Assignment
The equitable interest of a trust B is freely alienable to the extent the B can transfer other property (unless trust says otherwise).
B can assign rights to present or future income/principal.
Transferee takes interest subject to all conditions and limitations that would have applied but for the assignment.
Involuntary Assignment - Rights of Creditors
The interest of an insolvent trust B can generally be reached in appropriate proceedings to satisfy claims of creditors.
But, creditor only reached interest of the B and NOT the trust property itself.
Basic remedy is that creditor is to sell the interest of the B and have proceeds applied to the claim. The buyer at the sale acquiring the interest is held as a B.
Spendthrift Clause - Generally
This is one in which the B is unable to voluntarily or involuntarily transfer his interest in the trust.
This secures against the B’s own improvidence.
Restraint must apply to both voluntary and involuntary. If only involuntary, then violates public policy.
Spendthrift Clause - Rights of Creditors
Creditors cannot reach the interest in the sense of selling it an realizing future rights.
But, the restraint does not apply to income AFTER it has been paid out.
Spendthrift Clause - Assignment
These are unenforceable. However, a trustee may choose to honor the purported assignment and pay the assignee but the trustee may recommence payments to the B at any time and B may withdraw his direction to pay the assignee.
Spendthrift Clause - Exceptions to Enforceability (Based on Public Policy)
Trust for Settlor: A settlor is generally not allowed to create a spendthrift trust for his own benefit to avoid claims of creditors. If settlor tries to do this, the creditors can reach his right to the income just as if the restriction did not exist.
Claims by B’s Child, Spouse, Former Spouse: Spendthrift clause is unenforceable against these who have a judgment or court order.
Claims by Government:
