Trusts Beneficiaries Flashcards
Why do we need Beneficiaries?
Must be someone to whom TT owes fiduciary duties & someone who can call TT to account
Beneficiaries in Charitable trusts?
Recall; just needs to be for public benefit.
Creditor’s Rights with Trusts
- –>Discretionary Trust – beneficiary (B) can’t alienate his beneficial interest; B’s creditors can’t attach and can’t compel TT to make a distribution
- –>Spendthrift Trust – Beneficiary can’t transfer his interest; creditors can’t attach even if mandatory distribution right
- –>Self-Settled Asset Protection Trust – creditors of settlor may have recourse against such Trust’s assets
Limits on Settlor’s Freedom of disposition
1) restraints on alienation and creditor’s rights
2) . Power to modify or revoke trust
3) . Power to Remove TT
Mandatory Trust
Trustee must make payments to beneficiaries
Discretionary Trusts
TT has discretion over payment of either Trust’s income or principal, or both.
Trustee’s discretion in discretionary trusts
- ->Discretion – TT may be given wide discretion or may be limited by an ascertainable support standard (“such amounts as are necessary to support my children in the lifestyle to which they are accustomed”)
- ->Under the UTC §814 – TT shall exercise discretionary power in good faith and in accordance with terms & purposes of Trust and interests of beneficiaries
Types of Discretionary Trusts
Pure discretionary
Support
Discretionary Support (tricky tricky)
Pure Discretionary Trust
TT has absolute discretion over distributions to Bs
–>Cutting-off-distributions (Hamilton) – some states permit that creditors can get a court order to make TT stop making payments to B until creed. has been paid.
Support Trust
TT required to make distributions as necessary for beneficiary’s needs
Discretionary Support Trust
combines absolute discretion with a distribution standard
–> Courts tend to treat them as pure discretionary Trusts
Distinction b/w discretionary support trust
both Rest. 3d Trusts & UTC reject any distinction because B can always obtain some form of judicial review of TT’s exercise of discretion
–> Rest. 3d Trusts – allows B’s creditor to stand in B’s
shoes and compel/attach a distribution;
–> UTC §504 – creditor of B may not compel a distribution that is subject to TT’s discretion
□ Exception – support of B’s child, spouse (or former)
Spendthrift trust… WTF is this
Trust provision that prohibits voluntary or involuntary alienation of beneficial interests…. oh i see… so creditors can’t get interest in trust nor can’t use your trust interest as collateral for a loan… (thats why the UCC never mentions them in secured transactions holla!)
○ Most States – must expressly include clause in Trust
○ UTC §502 – spendthrift valid if restrains both voluntary & involuntary transfer of a B’s interest
–>○ UTC §503(b) – exception for support of B’s child, spouse or former spouse… Child support can get at your trust.
○ UTC & Rest 3d. both reject exception for tort creditors
○ Scheffel – upheld spendthrift clause against tort claim .
All exceptions to spendthrift clause
so generally creditors can’t reach trust under spendthrift unless (probe don’t need to know):
○ Alimony & child support creditors (majority rule)
○ Tort creditors (not entirely settled; UTC & Rest. 3d – No!)
○ Creditors furnishing necessary services or support
○ Federal tax liens
○ Spendthrift caps (for ordinary creditors)
○ Excess over amount needed for support (station-in-life rule)
○ Bankruptcy
○ Pension Trusts (ERISA, with exceptions)
○ TT’s exercise of discretion under discretionary Trust
Self-Settled Trusts
Settlor creates and transfers assets into a self-settled trust.
–> creditors always have recourse against settlor-beneficiary’s entire interest, even if Trust is discretionary, spendthrift, or both.
