Ch. 12: Spendthrift Trusts and Discretionary Trusts

• Basic Concepts

Synopsis: Discusses the major variants of trusts in the asset protection context.

• Spendthrift Trusts

Synopsis: Discussion of spendthrift trusts and certain statutory exceptions to spendthrift provisions.

Definition: Spendthrift Trusts – A trust that includes certain language giving the trustee wide latitude to avoid making distributions to beneficiaries where the distribution would go to a creditor, or where the trustee fears the distribution would be wasted by the beneficiary.

Definition: Domestic Asset Protection Trust (DAPT) – A self-settled spendthrift trust formed in a U.S. state that permits such forms of trust.

More information relating to spendthrift trusts, including a sample spendthrift provision and references to opinions involving spendthrift provisions, is available at http://www.assetprotectionbook.com/spendthrift_trusts.htm

• Discretionary Trusts

Synopsis: Discusses forms of discretionary trusts.

Definition: Discretionary Trusts – A trust that allows the trustee the discretion to make or not make distributions of benefits to the beneficiary, and to make unequal distributions among all beneficiaries.

• Powers of Appointment

Synopsis: Discusses the federal gift and estate tax effect of Powers of Appointment (POA).

• Dynasty Trusts

Synopsis: Discusses the benefits of Dynasty Trusts for estate planning.

Definition: Dynasty Trust – A trust formed in a jurisdiction that has either abolished the Rule Against Perpetuities (which limits the duration of trusts) or has statutorily expanded the Rule Against Perpetuities for a period in excess of 100 years.

• Beneficiary-Controlled Trusts

Synopsis: Discusses the disadvantages of Beneficiary-Controlled Trusts from an asset protection viewpoint, and possible methods of mitigating those problems.

• Trusts and UFTA

  Synopsis: Discusses the implications of gifting to fund trusts and the fraudulent transfer laws.