Trust Distribution, Modification, and Termination Flashcards
Yes a beneficiary’s equitable interest alienable?
(AKA, can it be transferred away?)
Yes, unless alienation is prohibited via:
1) Statute
2) Trust Instrument
Generally, when may a beneficiary’s creditors reach the trust principal or income
Only when the amounts become payable to the beneficiary or are subject to their demand.
May creditors reach into trust assets of a life-tenant beneficiary who has passed away?
No, as long as the life tenant’s estate no longer has an interest.
What is a spendthrift trust?
A trust that expressly restricts a beneficiary’s power to voluntarily or involuntarily [creditors] their interest.
Thus a beneficiary’s creditor cannot reach into the trust to satisfy their claim.
What are the exceptions to a spendthrift trust?
1) Necessities: Allow a creditor who provided a beneficiary with “necessities” (healthcare, food, housing, etc) to reach into the trust.
2) Child and Spouse Support: Allows a creditor to reach into beneficiary’s trust if they are entitled to child or spousal support
What may a irrevocable trust be terminated or modified?
Must have the consent of all beneficiaries, and the court concludes that continuance is not necessary to achieve the material purpose of the trust.
Does not need trustee consent.
When does a trust become irrevocable?
When the settlor makes it a revocable trust during their life, but they pass away.
Generally, does a spendthrift clause constitute a material purpose?
It creates a presumption that there is a material purpose, and therefore the trust should not be terminated or modified.
What are unanticipated circumstances?
Even with a material purpose, the court may modify or terminate a trust due to unanticipated circumstances
The modification/termination must be in accordance with settlor’s intentions an further purpose of trust.
May a trustee unilaterally terminate or revoke a trust?
No!
May a trust naturally terminate?
Yes, only when the trust purpose is achieved!
