Dynasty trusts are a huge growth industry [click here], and one of the main selling points for these trusts are their creditor-protection properties. When Florida adopted its version of the Uniform Trust Code in 2007 some questioned whether Florida’s existing spendthrift-trust protections had been watered down. To me the answer was always an obvious "NO". But this point is important enough to reiterate again . . . and again . . . and again. Which brings me to a recently published article entitled UNIFORM TRUST CODE SECTION 503: APPLYING HAMILTON ORDERS TO SPENDTHRIFT INTERESTS, that summarizes the point nicely:
Florida’s enactment of the UTC was merely a codification of the state’s existing case law. In Bacardi v. White, 463 So.2d 218 (Fla. 1985), after a beneficiary with a substantial interest in a spendthrift trust refused to pay court ordered child support and alimony, the Florida Supreme Court held that the beneficiary’s interest in the spendthrift trust could be reached to satisfy the beneficiary’s child support and alimony creditors. The Florida Trust Code preserves the Bacardi requirement that child support and alimony creditors reach a beneficiary’s spendthrift interest “only as a last resort.”[FN]
[FN] Compare FLA. STAT. § 736.0503(3) (West 2005 & Supp. 2008) (“[T]he remedies provided . . . apply to a claim . . . in paragraph (2)(a). . . . only as a last resort upon . . . showing that traditional methods of enforcing the claim are insufficient.”), with Bacardi, 463 So. 2d at 222 (allowing garnishment “only as a last resort”).
The linked-to article also does a good job of providing a plain-English explanation of the general public policy rationale underlying exceptions to spendthrift-trust protections. If you’re ever litigating this point, understanding the "why" of the rule will be just as important as understanding what the statute actually says.
The primary policy justifications for allowing a settlor to prevent beneficiaries from losing their interests in a spendthrift trust are that (1) a settlor should have the right to dispose of his property as he chooses, and (2) as part of that right, the settlor should have the opportunity to protect beneficiaries from creditors taking advantage of the beneficiaries’ misfortune or improvidence.
Most states provide exceptions that allow certain creditors to reach a beneficiary’s interest in a spendthrift trust. The two most common exceptions are for child support and alimony creditors. The primary justifications for allowing child support and alimony creditors to reach a beneficiary’s interest in a spendthrift trust are that (1) unlike ordinary creditors, child support and alimony creditors are unable to protect themselves from the debtor’s irresponsibility, and (2) while a settlor should be able to protect a beneficiary from personal pauperism, a beneficiary should not be able to enjoy an interest in a spendthrift trust while neglecting to support those dependent on him.