Trusts

Question 1

Spendthrift Trust

Answer 1

A spendthrift trust clause protects a trust’s beneficiary from creditors by prohibiting the voluntary assignment and involuntary transfer of the beneficiary’s interest.

Exceptions include *interest retained by the settlor, necessities, *child support obligations, and federal tax liens.

Question 2

Settlor Retains Interest in Irrevocable Trust

Answer 2

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 tot he settlor.

Question 3

Revocability

Answer 3

In Texas, all trust are revocable by the settlor unless expressly made irrevocable.

If a trust is revocable, the settlor’s creditors may reach the entire estate and its income in satisfaction of their claims and a spendthrift trust is ineffective as to them.

Question 4

Creditors Reaching Grantor’s Trust Interest

Answer 4

Creditors can reach any interest in a revocable trust. In an irrevocable trust, only the grantor’s income interest can be reached. Creditor cannot reach the principal unless it was a fraudulent transfer.