Transfer of Beneficiary's Interest

Question 1

Voluntary transfers as gifts and sales

Answer 1

Allowed absent restrictions by statute or in trust instrument

Question 2

Involuntary transfers to creditors

Answer 2

Unless statute or the trust provides otherwise, creditors can get to beneficiary’s interest

Question 3

Discretionary trusts

Answer 3

Where the trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary.

Question 4

Creditor’s rights in a discretionary trust

Answer 4

Before trustee makes payments, beneficiary has no assignable interest and cannot be reached by creditors.

Exception: claims of child, spouse, or former spouse

Question 5

Beneficiary’s rights in a discretionary trust

Answer 5

No right to payment that they can enforce against the trustee. Can go to court and prove trustee abused their power

Question 6

Spendthrift Trusts

Answer 6

Precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust. Creditors are precluded from reaching it to satisfy their claims

Question 7

Transfer of interest by beneficiary (spendthrift trust)

Answer 7

Cannot transfer interest. Once trustee pays B, then B may transfer the property received

Question 8

Creditor’s ability to attach property (spendthrift trust)

Answer 8

Creditors cannot reach the B’s trust interset until income or principal has been paid to the B. Once paid, creditors can reach the property

Question 9

DAPT

Answer 9

Domestic Asset Protection Trust. Allowable in some states. Where a settlor uses a spendthrift trust to protect their own property from their own creditors.

Question 10

Support trusts

Answer 10

A trust the directs the trustee to pay only so much of the income or principal (or both) as is necessary for the B’s support. Can be mandatory or discretionary.