Trasferability of Beneficiary's Interest: Creditors' Trusts

Question 1

Can creditors reach a beneficiary’s interest where the trust does not contain a spendthrift provision?

Answer 1

Yes. In the absence of such a provision, the beneficiary’s interest is as freely transferable as any legal interest would be, and it can be reached by her creditors by garnishment, attachment, or levy of execution.

Question 2

What is the effect of a spendthrift provision?

Answer 2

It precludes the beneficiary from voluntarily or involuntarily transferring her interest in the trust, and her creditors are precluded from reaching it to satisfy their claims.

Question 3

Is income distributed to a beneficiary still protected under a spendthrift provision?

Answer 3

No.

Question 4

Spendthrift provisions cannot be used to shield the beneficiary against:

Answer 4

1) claims for child support;
2) his own creditors where beneficiary is the settlor
3) claims by the government

Question 5

When it is unclear whether a beneficiary is the settlor, determine:

Answer 5

Who furnished the consideration for the creation of the trust - this is the settlor

Question 6

Is a spendthrift provision effective in a revocable trust?

Answer 6

No. Creditors can reach the entire trust property even if the trust contains a spendthrift provision.

Question 7

What happens if the trustee ha discretion to pay, accumulate, or appoint the income among several beneficiaries?

Answer 7

The beneficiary does not have any “right” to the income until the trustee exercises his power, and thus the beneficiary’s creditors cannot compel payment (even in the absence of a spendthrift provision) unless the claims are for (1) child support; other shit that won’t be tested.

Question 8

Can the creditors of a trustee reach trust property to satisfy their claims?

Answer 8

No, they have on.y a personal claim against the trustee.