An attorney called me to ask about his client who is facing a large civil judgment. The debtor/client is one of three children who is a beneficiary of an irrevocable trust established by a parent. The parent died. The trust agreement provides that after the parents death the trust is allocated into separate trust shares foe each of the three children, and trust agreement requires quarterly distributions to the heirs of all income in their trust share. The attorney wanted to know if something could be done to protect the income distributions from the client’s judgment.
The judgment creditor could garnish the required distributions. None of the parties involved can amend the terms of the trust after the parent’s death. The trust was irrevocable during life and remains so after the parent’s death. The trustee could be liable if it refuses to distribute money or distributes to other beneficiaries but not the debtor. The trustee is a family member.
One suggestion I had was for the trustee of the debtor’s trust share to liquidate the assets in the trust and purchase an immediate annuity. Income distributions from any annuity are exempt under Florida Statutes. Because the debtor is not the one converting the assets to an annuity there should be no fraudulent conversion. However, if the family member remains as trustee then the creditor could have a strong argument that the debtor was the person behind the conversion and that the court should reverse the transaction. The better plan is for the current trustee to appoint a professional person as independent co-trustee, or successor trustee, and hope that the new trusteee figures out the annuity option without the debtor’s influence.