Transfer of B's Interest

Question 1

B’s transferrable interest in the trust

Answer 1

VOLUNTARY Transfers: B may freely transfer their interest in the trust. The assigned interest remains subject to all previous conditions and limitations.

INVOLUNTARY Transfers: B’s creditors may reach the beneficiary’s interest in the trust, and the interest is subject to judicial sale. HOWEVER a court may order the trustee to pay the beneficiary’s income to the creditors until the debt is satisfied.

Question 2

Discretionary Trusts

Answer 2

Trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary.

Before the trustee exercises their discretion to make payments to the beneficiary, the beneficiary’s interest is not assignable and cannot be reached by their creditors.

B cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses their power, in which case the court will intervene

Question 3

Spendthrift Trusts

Answer 3

This is a restraint on alienation of B’s interest in the trust

The beneficiary may not transfer their interest, but once the trustee pays the beneficiary, the beneficiary may transfer the property received.

The beneficiary’s creditors cannot reach the beneficiary’s trust interest until income or principal has been paid to the beneficiary.

Question 4

When is a Spendthrift Provision Invalid?

Answer 4

If the settlor is the beneficiary (the settlor cannot protect their own property from their creditors).

Certain classes of creditors can reach a beneficiary’s assets notwithstanding a spendthrift restraint:
- Dependents,
- Government
- Persons supplying necessities (e.g., a divorced wife can usually reach the husband’s interest to satisfy a claim for alimony)

Question 5

Support Trusts

Answer 5

A support trust directs the trustee to pay only so much of the income or principal as is necessary for the beneficiary’s support.

Nobody BUT the B can enjoy the trust: The interest of the beneficiary cannot be assigned or reached by creditors.

The standard of support is the beneficiary’s accustomed standard of living. Courts look at the beneficiary’s other income or resources on a case-by-case basis.