Transfer of Beneficiary's Interest

Question 1

*Typical Rules

Answer 1

Voluntary assignment: usually allowed unless subject to spendthrift provision

Involuntary assignment: any property a beneficiary can transfer can be subjected to claims of judgment creditors

Question 2

*Spendthrift Clause

Answer 2

beneficiary cannot voluntarily or involuntarily transfer his interest in the trust, including to creditors.

Question 3

*Spendthrift Clause:

Major Exceptions

Answer 3

Spendthrift not protected if:

(a) settlor designates himself as beneficiary; or
(b) *if the trust is revocable by settlor.

*Interests in trust are reachable by creditors (a) who furnish necessaries and (b) by claimants of child support and (c) federal tax liens

Question 4

*Discretionary Trust

Answer 4

Trustee, in his sole discretion, has the right to decide whether to make a distribution to beneficiary.

Typically not reachable by creditors, BUT

If discretionary trust is in favor of settlor, creditor can reach settler’s interest to the extent the trustee could make a distribution to him.

Question 5

*Support Trust

Answer 5

Trustee’s discretion is tied to standard (e.g. “for the support and maintenance of beneficiary”).

“Support” creditors can reach support trusts to the extent that the beneficiary herself can reach it

Question 6

Anti-General Power of Appointment Statute

Answer 6

A distribution power not limited by an ascertainable standard may be exercised only by a trustee who is not a potential distributee.

If the beneficiary is the sole trustee, a court-appointed fiduciary may exercise its power.

Question 7

*Spendthrift clause, settlor, and irrevocable trust

Answer 7

Typically irrevocable trusts are not subject to creditors because settlor no longer legally owns the assets he or she used to fund it.

If the settlor of an irrevocable trust retains an interest in the trust, her creditors may reach the trust in satisfaction of their claims to the maximum extent that the trustee could make distributions to the settlor