Transfer of Beneficiaries' Interests Flashcards
Are interests freely transferable
A. Freely transferable interests are PRESUMED
a. Voluntary transfers—gifts and sales
i. unless the trust provides otherwise (as is usually the case), BE can transfer their equitable interest to whoever
b. Involuntary transfers—creditors
i. unless trust provides otherwise, BE’s creditors may reach the BE’s interest in the trust
c. almost never true—trusts usually just have life interest. Trusts counter transfer.
i. Trusts also usually have spendthrift provisions→ saying BE’s creditors can’t reach the interest and the BE can’t transfer the interest
Discretionary trust
a. Trustee determines how much, if anything the BE receives
b. Very common. OR creates the trust and there’s no way to know which child/ grandkid will need what. They pick a TE to use substituted judgment as to which BE gets how much, and TE cant decide bc TE is deceased
i. BE has nothing to transfer until TE decides to make a payment.
ii. Noting for a creditor to reach until TE elects to make a payment
c. All the BE has is an EXPECTANCY to be the beneficiary of a power of appointment placed into a trust
Spendthrift trust
a. Characteristics
i. BE may not transfer the interest in trust. Once TE pays the BE, the BE may transfer the property received.
ii. Creditors may not attach the BE’s trust interest. Once TE pays the BE’s money then the creditor may reach the property.
1. but TE can also use money from trust for BE’s costs, like rent mortgage etc. Directly from TE to where it needs to go.
b. Limits on enforcement
i. ineffective if OR is a BE (self-settled spendthrift trust)
1. in most states, cannot use a spendthrift trust to protect your own stuff from your own creditors
a. some states allow it,. competition with offshore asset hiding.
2. if other’s creditors, OK bc you never had an obligation to those creditors.
ii. may be ineffective against certain creditors
1. child support or alimony can pierce spendthrift veil
2. creditors who have supplied necessaries, food, clothes, shelter, medical care.
3. some states allowing tort creditors.
Support trust
a. Use of trust property limited to BE’s support – TE can only use trust property for things like health, education, maintenance, support. HEMS standard. May be mandatory or discretionary for the TE to decide.
b. Impliedly spendthrift even if OR omitted spendthrift provision
c. Standard of support
i. if instrument is silent, it is the BE’s standard of living to which BE was accustomed before they became a BE.
d. Do we consider BE’s other resources as first or last dollars?
i. case-by-case
