Transfer of the Beneficiaries Interest

Question 1

Voluntary trasnfers - gifts and sales

Answer 1

Absent restrictions by statute or by trust instrument, a beneficiary may freely transfer their interest in a trust. The assigned interest remains subject to all previous conditions and limitations.

Question 2

Involuntary transfers - creditors

Answer 2

Unless a statute or the trust provides otherwise, the beneficiary’s creditors may reach the beneficiary’s interest in the trust. The interest is subject to judicial sale.

Question 3

Discretionary trust

Answer 3

The trustee is given discretion whether to apply or withhold payments of income or principal to a beneficiary

Question 4

Creditor’s rights in a discretionary trust

Answer 4

Before the trustee exercises their discretion to make payments to the beneficiary, the beneficiary’s interest is not assignable and cannot be reached by creditors.

Creditors are usually allowed to attach the beneficiary’s interest but may not compel the trustee to make a distribution.

If a trustee has notice of an attachment by creditors and decides to make payments to the beenficiary, the trustee must make those payments directly to the creditors unless the beneficiary’s interest is protected by a spendthrift provision.

Question 5

Beneficiary’s rights in a discretionary trust

Answer 5

Beneficiary has no right to payment that they can enforce against the trustee; thus, the beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee aboses their power.

Question 6

Spendthrift trusts

Answer 6

Precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust, and the beneficiary’s creditors are precluded from reaching the trust to satisfy their claims.

The purpose is to protect the beneficiary from their own improvidence.

Question 7

Characteristics of spendthrift trust

Answer 7

1. the beneficiary may not transfer their interest (but the beneficiary may transfer property once received)
2. the beneficiary’s creditors cannogt reach the beneficiary’s trust interest until income or principal has been paid to the beneficiary

Question 8

Can a settlor protect their own property from creditors by creating a spendthrift trust?

Answer 8

In most states, a spendthrift provision is invalid if the settlor is the beneficiary

Question 9

Which classes of creditors can reach a beneficiary’s assets notwithstanding a spendthrift provision?

Answer 9

1. claims of dependents
2. the government
3. people suppling necessities (e.g., wife can reach property to satisfy claim of alimony)
4. tort creditors

Question 10

Support trust

Answer 10

A suport trust directs the trustee to pay only so much fo the income or principal as necessary for the beneficiary’s support.

the interest of the beneficiary cannot be assigned or reached by creditors.

Question 11

Is the beneficiary’s interest in a support trust assignable?

Answer 11

No, even without a spendthrift clause. Support trusts are, therefore, simpliedly spendthrift trusts.

Question 12

Standard of support and other resources in support trusts

Answer 12

If the instrument is silent, the standard of support is the beneficiary’s accustomed standard of living. Whether the beneficiary’s other income or resources should be taken into account is a question of the **settlor’s intent **and decided by court on case by case basis.