Latest / BSPE Legal Marketing Podcast / Spendthrift Provisions in a Living Trust - Davies Law Firm

Transcript

Spendthrift Provisions in a Living Trust - Davies Law Firm · BSPE Legal Marketing Podcast

• 0:00
  Spendthrift Provisions in a Living Trust When families leave wealth to loved ones, they often worry that poor financial decisions, creditors, or divorce could erode everything they worked to build.
• 0:11
  A spendthrift provision inside a living trust is a powerful legal clause that restricts a beneficiary's ability to transfer their interest before receiving it and limits creditor access while assets remain in trust.
• 0:25
  The clause does not need to use the word 'spendthrift' — it can restrict the beneficiary from assigning, selling, pledging, or encumbering their covered interest in any way.
• 0:36
  Under New York Estates, Powers and Trusts Law Section 7-3.1, a disposition in trust for the trustor's own benefit is void against the trustor's existing or subsequent creditors, so the provision protects beneficiaries rather than the person who created the trust.
• 0:54
  Income and principal interests are treated differently under New York law, with EPTL Section 7-1.5 making an express trust beneficiary's right to income inalienable unless the trust instrument grants the beneficiary power to transfer it.
• 1:10
  For a trust beneficiary facing an ordinary money judgment, New York CPLR Section 5205(c)(1) exempts property held in trust when the trust was funded by someone other than the judgment debtor, providing a meaningful layer of protection.
• 1:26
  Even income payments from that exempt trust enjoy protection, with CPLR Section 5205(d)(1) exempting ninety percent of those payments from an ordinary money judgment unless a court finds the excess unnecessary for the beneficiary's reasonable needs.
• 1:44
  In bankruptcy, under 11 U.S.C. Section 541(c)(2), a valid spendthrift restriction on transferring a beneficial interest remains enforceable if it is enforceable under applicable nonbankruptcy law, making the trust language critically important.
• 2:00
  Divorce raises a separate set of considerations — a spendthrift provision continues to govern a beneficiary's transfer rights during divorce proceedings, but it does not determine whether inherited property qualifies as marital or separate property.
• 2:16
  Under New York Domestic Relations Law Section 236, property received by bequest, devise, or descent is separate property and is generally not subject to equitable distribution, though depositing inherited distributions into a joint account creates a presumption of marital property.
• 2:34
  The trustee's authority over distributions also plays a central role, because the distribution standard defined in the trust instrument determines when property leaves the trustee's control and when a beneficiary becomes legally entitled to payment.
• 2:49
  Attorneys Frederick P. Davies and William P. Davies bring decades of combined estate planning experience to help families in Syracuse structure living trusts with spendthrift protections that reflect the trustor's specific goals and family circumstances.
• 3:05
  Frederick P. Davies, a former United States Navy Judge Advocate who retired from military service in 2015, founded the law firm in 1993 with a focus on estate planning, living trusts, probate, and taxation.
• 3:20
  William P. Davies earned his Juris Doctor magna cum laude from Albany Law School and an LL.M. in estate planning from the University of Miami, bringing focused academic training to every trust matter the firm handles.
• 3:35
  Whether you are creating a new trust or reviewing an existing one, a knowledgeable lawyer can evaluate whether your spendthrift restrictions cover income, principal, or both and whether your distribution terms align with your family's needs.
• 3:50
  Working with an experienced attorney at Davies Law Firm ensures that your trust is structured to protect beneficiaries under New York and federal law from the moment it is signed.
• 4:01
  Call Davies Law Firm at 315, 472, 6511, located at 210 E Fayette St, Syracuse, NY 13202, United States, to schedule a consultation and protect what matters most to your family.