Disputes Over a Spendthrift Trust

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What is a Spendthrift Trust?

A trust is a legal instrument that allows property to be passed from a trust creator to a beneficiary (the recipient).  Instead of the property going straight to the recipient, a third party actor, known as the trustee, will be authorized to manage the property or asset until the time is set for the transfer.  In some trusts, this can be at a specified date, or after the fulfillment of certain conditions.

A spendthrift trust is a trust that is specifically designed for younger, more inexperienced persons (typically a minor child of the trust creator).  Here, the beneficiary is called the “spendthrift”.  The purpose of a spendthrift trust is to prevent the beneficiary from wasting or squandering the trust property through mismanagement or overspending.  In most spendthrift trust arrangements, the beneficiary can’t access the funds until a certain time (such as when they turn 18), or at the discretion of the trustee.

What are Some Common Disputes Over a Spendthrift Trust?

One of the main disputes in a spendthrift trust is where the beneficiary wants to assert their right to collect a distribution before the proper time.  In most cases, the courts will abide by what is written in the trust instrument.  Thus, if the trust document states that the beneficiary can only collect after a certain time, they must abide by the document.  Certain exceptions can be made, though these can be rare and may depend on individual needs.

Another common trust dispute is where the trustee fails to perform their trustee duties.  For instance, if they use the trust funds for their own purposes, this is a violation and will likely result in a lawsuit.  The trustee would then be required to pay back the amount they used, plus damages for any losses caused by their breach of duty.  Also, the court or the original testator may decide to replace the trustee with a different person. 

Lastly, disputes amongst beneficiaries are also common in a spend thrift trust.  This can happen if one beneficiary feels that they are entitled to a certain asset or distribution as opposed to another person.  In such circumstances, the court may be required to intervene and determine how the distributions should be allocated. 

What is a Self-Settled Spendthrift Trust?

A self-settled spendthrift trust is where the person creating the trust is also the sole beneficiary of the assets.  These are only available in some states.  Here, a trustee is still appointed, but the creator (the testator) will receive back the property at the given time or after the required conditions are fulfilled.

In such arrangements a dispute over the spendthrift trust is less likely, since there are no beneficiaries besides the trust creator.  However, a dispute can still arise between the trustee and the beneficiary.   Thus, it’s important in any trust arrangement that the trustee be chosen carefully, in order to avoid disputes.

Should I Hire a Lawyer for Help With a Spendthrift Trust Dispute?

Any type of trust dispute should be taken serious, as it may affect the outcome for many different parties.  You may need to hire a lawyer if you have a dispute or any concerns regarding a spendthrift trust.  Your attorney can help represent you in court so that your interests are fully protected.  Also, you may wish to hire a lawyer early on to help you during the drafting and reviewing stages of the trust formation.

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Last Modified: 05-05-2014 03:37 PM PDT

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