When planning estates, many consider how and whether creditors can reach their property. If it’s mandatory that a trustee make certain payments to the beneficiary out of the trust corpus, the rule is that a creditor can attach an interest to the trust. This means that the creditor will get paid before the beneficiary gets paid, and the money never passes through the hands of the beneficiary. If, on the other hand, you have a discretionary trust, meaning that the beneficiary doesn’t have a right to the income from the trust until the trustee decides to pay it, a creditor cannot compel payment. The creditor would only be able to reach any interest that the trustee actually pays.
The distinction between creditors’ rights with respect to mandatory and discretionary trust funds lies in property law. Property law sees the former, and not the latter, as a real interest to which a creditor can attach. With discretionary trusts, the interest of the beneficiary doesn’t arise until the moment that the trustee exercises discretion.
Call an Estate Planning Attorney Today (781) 489 6776
To learn more about creditors’ rights to trust funds or to discuss your estate planning needs, contact the experienced attorneys at Fields and Dennis LLP at (781) 489 6776.
