Transfer of the Beneficiary's Interest

Question 1

What is a Discretionary Trust?

Answer 1

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

Question 2

What rights does a creditor have in a Discretionary Trust?

Answer 2

The beneficiary has nothing to transfer and no interest for creditors to reach – the beneficiary merely has an expectancy to be a beneficiary.

Exception: child, spouse, or former spouse support.

Question 3

What is a Spendthrift Trust?

Answer 3

Precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust, and the beneficiary’s creditors are precluded from reaching it to satisfy their claims.

Question 4

Purpose of a Spendthrift Provision:

Answer 4

to protect the beneficiary from their own improvidence.

Question 5

Spendthrift provision will be invalid if:

Answer 5

the settlor is also the beneficiary!

Question 6

What is a Support Trust?

Answer 6

Directs the Trustee to pay only so much of the income or principal (or both) as is necessary for the beneficiary’s support.

May be mandatory or discretionary:
- if discretionary –> the creditors’ rights are the same as they are for other discretionary trusts.

Question 7

Support Trust is NOT assignable or reachable without a _______.

Answer 7

spendthrift provision

Question 8

If the Support Trust is silent, the standard of support is ________.

Answer 8

the beneficiary’s accustomed standard of living