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Does a Spendthrift Trust Protect Against Spousal or Child Support Orders?

If you have a child or other relative who is irresponsible with money or is the subject of a number of creditor judgments, you might consider including a spendthrift clause as part of your estate planning. A spendthrift clause, also known as a spendthrift trust, allows you to leave money to a beneficiary with certain restrictions. Technically, you leave the money to a trustee, who can make payments to the beneficiary per your instructions.

Since the principal of the spendthrift trust remains with the trustee, in most cases the beneficiary’s creditors cannot go after these funds. For example, a creditor could not attach a lien against the trust’s assets. But there are exceptions to this rule, as illustrated by a recent California appeals court decision.

Trustees Ordered to Pay Brother’s Wife

In this case, a mother created a trust for the benefit of her children. The mother included a spendthrift clause applicable to one of her sons, who has a long history of alcohol abuse. The mother named two of her other children to serve as trustees of the spendthrift trust, which includes language stating that none of her son’s creditors may attach a claim to any trust assets unless and until he actually receives a distribution.

One of the son’s creditors is his estranged wife. The couple is in the process of divorce, and a court in Napa County awarded the wife $1,900 per month in temporary spousal support and another $15,000 for legal expenses. The court said this money should be paid directly from the assets of the spendthrift trust.

The trustees balked at this demand. The wife subsequently filed a separate civil lawsuit against the trustees to enforce the spousal support order. The court sided with the wife. The trustees appealed, but the California First District Appellate Court affirmed the order.

As the appeals court explained, California law contains express language authorizing courts to order spendthrift trusts to satisfy a spousal or child support order against the beneficiary. Indeed, the court noted the trustees were well aware of the spousal support order in this case but “chose not to” pay it, primarily out of a desire to appease the beneficiary–their brother–who has a long history of “offensive behavior and litigious tendencies.” The beneficiary demanded the trustees not pay his wife’s support order while simultaneously asking them to pay off other “unpreferred, unsecured creditors, including family debts.” Under the circumstances, the Second District said, the trial court was well within its “equitable” discretion to compel the trustee to make payments to the beneficiary’s wife.

Need Advice From a California Estate Planning Attorney?

A spendthrift trust may not fully protect against a child or beneficiary’s creditors, but it can mitigate the impact of leaving a large inheritance to someone who is not good with money. If you want to consider a spendthrift trust as part of your own will or trust and need to speak with a qualified San Diego estate planning lawyer, contact the Law Office of Scott C. Soady today.

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