Transfer of the Beneficiary's Interest

Question 1

Is voluntary assignment valid to transfer the beneficiaries interest?

Answer 1

Absent restrictions by statute or the trust instrument, a beneficiary may freely transfer his interest in the trust. However, the assigned interest is held to the same restrictions of all previous conditions or limitations.

Question 2

When can involuntary transfer for the rights of creditors be instituted?

Answer 2

An insolvent trust beneficiary’s creditors may levy on his beneficial interest. The interest is subject to judicial sale. To avoid this, a court may order the trustee to pay the beneficiary’s income to the creditors until the debt is satisfied.

Question 3

What is a spendthrift trust?

Answer 3

It precludes the beneficiary from voluntarily or involuntarily transferring his interest in the trust, and his creditors are precluded from reaching it to satisfy their claims. The purpose is to protect the beneficiary from his own improvidence. Although a spendthrift trust is a restraint on alienation, most courts will uphold their validity.

Question 4

What are the exceptions to a spendthrift clause?

Answer 4

Cannot be used to shield the beneficiary from:

1. His own creditors where the beneficiary is the settlor;
2. Judgments or court orders for support or maintenance of the beneficiary’s child, spouse, or former spouse; or
3. claims by teh government.

Question 5

What is a discretionary trust?

Answer 5

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

Question 6

What are support trusts?

Answer 6

A support trust directs the trustee to pay only so much of the income or principal or both as is necessary for the beneficiary’s support. This is a discretionary trust with a support standard.