Can creditors reach a spendthrift trust?

Once an asset of a spendthrift trust is distributed to the beneficiary, however, it can be reached by creditors. A spendthrift trust has historically been a powerful tool to protect beneficiaries from their own imprudent business decisions.

What does the spendthrift clause protect?

A trust with a spendthrift clause is specifically designed to protect the beneficiary against themselves, as well as their creditors. They cannot transfer the assets held by a trust into their own possession, and can only control assets that were distributed to them.

Is a spendthrift trust fair to the creditors of the beneficiaries?

A spendthrift provision in a trust restricts a beneficiary’s ability to transfer trust assets. It also prevents creditors from reaching the property of the trust to repay the beneficiary’s debts.

Can you sue a spendthrift trust?

California law does not allow people to transfer their money into a trust (the “trustors” are the people transferring the money into the trust) instead of paying their creditors. The creditors do have some rights and can sue the trust to compel payment to them.

Can beneficiary be trustee of spendthrift trust?

The grantor can be the trustee of the trust or he or she can name someone else to do the job. The grantor should also name a successor trustee who would take over when the grantor dies. The beneficiary cannot be a trustee.

Who can be the trustee of a spendthrift trust?

Under Chapter 166, an individual can serve as the settlor, trustee, and beneficiary of the trust. This network of laws is specifically designed to protect trust assets from the claims of any creditor.

Can a trustee be personally sued?

Yes, a trustee can be held personally liable if they are found to be in breach of duty or breach of trust. The state requires trustees to follow the terms of a trust to the letter.

Can a trustee be liable for debts?

What Trust Debts am I liable for as the Trustee? While a Trustee has a duty to pay debts, a Trustee does NOT have a duty to pay the debt themselves. In other words, a Trustee may use all the Trust assets to pay debts (assuming that is required), but they need not pay the Trust debts from their own pocket.

Can trustees be held personally liable?

Trustee liability Trustees must understand that they can be held personally liable for poor decisions made in relation to the trust, whether made directly by them or by another trustee. It’s important that trustees understand this before accepting an appointment.