Florida law has a well-established tradition of protecting a beneficiary’s interest in a discretionary spendthrift trust. A “spendthrift trust” is an trust established for the benefit of another person, the beneficiary, which trust includes a provision that prohibits the beneficiary from voluntarily or involuntarily assigning his interest to a third party including the beneficiary’s creditors. The spendthrift trust is “discretionary” if the trustee of the trust is given the discretion over the timing and amount of distributions he makes to the trust beneficiaries.
One of my clients is the beneficiary of a spendthrift trust established by his parents for the benefit of my client. There are no other beneficiaries. The parents named my client as the trustee of the trust created for his benefits. The trust gives the trustee, the client, discretion over the amount and timing of distributions.
The client has a potential legal problem. He wants to know if his beneficiary interest in his parents’ spendthrift trust is protected from this future creditors even when the client is serving both as the trustee and the sole beneficiary. The client is concerned that his future creditors could ask a court to force my client to exercise his power as trustee to make distributions of trust assets to himself and that the assets could be levied upon once he receives the assets outside of the trust. In other words, does spendthrift protection still apply when the debtor is both beneficiary and discretionary trustee of the trust.
I believe the debtor’s beneficial interest is protected from his creditors even though the parents gave the debtor discretion to distributed trust assets to himself as beneficiary. Florida revised its trust statute in 2007 in a manner that reinforced the protectiveness of spendthrift trusts. There is now a specific statute protecting the beneficiary’s interest of a discretionary trust. I read the statute to state that spendthrift protections apply where the debtor is trustee and beneficiary. There are no cases interpreting this issued under the new trust law.
There is a case decided prior to the new trust law that protected a debtor’s beneficial interest in a spendthrift trust when the trustmaker had named the debtor as trustee and had given the trustee the discretion over distributions to himself and other beneficiaries. As far as I know, no Florida court has reached a different conclusion. See 798 So. 2d 895 (Florida 5th DCA 2001).
Remember that self-settled trust provide no asset protection. A creditor could levy upon trust assets where the debtor established a trust for his own benefit and named himself as trustee.
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