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Flashcards in Beneficiaries Deck (22):
1

Transfer of Beneficiaries' Interests

Alienability in general
- as a gen rule, beneficiaries' interests are both voluntarily and involuntarily alienable as a property right

Voluntary alienation = beneficiary is allowed to transfer his/her right to future payments of a trust

Involuntary alienation = involuntary alienation allows creditor to attach to beneficiary's rights to future payments by obtaining a judgment

2

What is voluntary alienation?
(for trust beneficiary)

beneficiary is allowed to transfer his/her right to future payments of a trust

3

What is involuntary alienation?
(for trust beneficiary)

involuntary alienation allows creditor to attach to beneficiary's rights to future payments by obtaining a judgment

4

Spendthrift Trusts

= restraint on alienation (both voluntary and involuntary)

designed to protect beneficiary's future income stream by prohibiting alienation on beneficiary's rights to future payments

• voluntary permitted while involuntary prohibited = invalid
• exceptions = preferred creditors, settlor as beneficiary

• surplus = income exceeds beneficiary's station in life
- any creditor may attach
- station in life = std of living

5

What are the exceptions to spendthrift trusts?

Ct will disregard a spendthrift clause and allow a preferred creditor to attach to the beneficiary's future income or principal payments from the trust.

Preferred Creditors
- gov (i.e. taxes)
- dependent (i.e. child support/alimony payments)
- persons supplying necessities (food, clothing, shelter, and medical care)
- tort creditors (tort (involuntary creditors) on theory that they could not protect themselves against beneficiary's tortious conduct)

Settlor as beneficiary
- involuntary alienation = invalid
- voluntary alienation - courts are split
• maj view = ignore spendthrift provision
• min view = uphold spendthrift provision

6

Discretionary Trusts

• trustee has discretion to pay/withhold corpus and/or proceeds of trust

• voluntary alienation = same rights as beneficiary

• involuntary alienation = same rights as beneficiary

• settlor as beneficiary = creditors may compel payments

7

Support Trusts

Trustee distributes only in amount necessary for beneficiary's support

beneficiary's other income considered? = depends on settlor's intention

voluntary alienation = prohibited
involuntary alienation = prohibited, EXCEPTION: preferred creditors

8

Voluntary alienation for support trusts

prohibited

9

Involuntary alienation for support trusts

prohibited
EXCEPTION: preferred creditors

10

Can a beneficiary's income be considered for support trusts?

Depends on settlor's intention

11

Life Tenant

= income and expenses

12

What is considered income for Life Tenants?

income = money/property that fiduciary receives as current return from a principal asset

- cash receipts from entities

- insurance proceeds - insuring trustee against lost of occupancy or other use by an income beneficiary, loss of income, or loss of profits from biz

- 10% of deferred compensation

- 10% of mineral, water, other natural interest (exception: renewable water rights)

13

What is the exception for 10% of mineral, water, and other natural interest for income for life tenants?

renewable water rights

14

What are expenses for Life Tenants?

• 1/2 of trustee's and advisor's compensation
• 1/2 of accounting and judicial expenses
• interest on debt
• minor repairs
• insurance premiums
• recurring taxes assessed against principal

15

What is a remainderman?

= principal and expenses

16

What is the principal allocated to Remainderman?

= property held in trust for distribution to a remainder beneficiary when the trust terminates

(1) receipts from entities (liquidating distributions, capital gains income, property other than money - stock splits/dividends)

(2) insurance proceeds - proceeds of a life ins policy/other K in which the trust/trustee is named as beneficiary, including a K that insures the trust/trustee against loss for damage to, destruction of, or loss of title to a trust asset

(3) principal assets - money/ other property received from the sale, exchange, liquidation, or change in form of a principal asset, including realized profit (eminent domain awards)

17

What are expenses allocated to Principal (Remainderman)?

• 1/2 of trustee's and advisor's compensation, accounting, and judicial expenses
• 1/2 of accounting and judicial expenses
• debt principal
• major repairs/improvements
• insurance premiums
• estate taxes
• environmental matters

18

For spendthrift trusts, is voluntary permitted while involuntary prohibited?

No.

trust provisions that allow a beneficiary to voluntarily transfer her interest but prevent creditors from reaching the beneficiary's interest are invalid

EXCEPTIONS:
(1) Preferred Creditors
- gov (i.e. taxes)
- dependent (i.e. child support/alimony payments)
- persons supplying necessities (food, clothing, shelter, and medical care)
- tort creditors (tort (involuntary creditors) on theory that they could not protect themselves against beneficiary's tortious conduct)

(2) Settlor as beneficiary
- involuntary alienation = invalid
- voluntary alienation - courts are split
• maj view = ignore spendthrift provision
• min view = uphold spendthrift provision

19

Surplus for Spendthrift Trusts

surplus = income exceed's beneficiary's station in life (std of living)

any creditor may attach

The concept of surplus in some jxns allows creditor (not just preferred) to attach future payments to the beneficiary, despite a spendthrift clause, where income to be paid exceeds what is needed to maintain the beneficiary's "station in life"

station in life = std of living
-beneficiary's condition in life, her health, and other circumstances as well as the condition of her family

20

Who are preferred creditors?
(for spendthrift trusts)

- gov (i.e. taxes)
- dependent (i.e. child support/alimony payments)
- persons supplying necessities (food, clothing, shelter, and medical care)
- tort creditors (tort (involuntary creditors) on theory that they could not protect themselves against beneficiary's tortious conduct)

21

Trustee's duty not to discriminate between beneficiaries

as b/w present and future beneficiaries

22

Trustee's adjustment powers

to carry out the purpose of the trust the trustee may adjust b/w income and principal in diff ways