Asset protection lawyers are almost universally in agreement that assets in an irrevocable spendthrift trust established by a third party (often a parent) for the benefit of a beneficiary (typically a child) are not available to satisfy the debts and liabilities of the beneficiary. Indeed, that is one of the principal reasons for including spendthrift language in the trust. And case law is clear that settlors have every right to place their assets outside the reach of their beneficiaries’ creditors. Compare this traditional planning with the self-settled spendthrift trust – the typical domestic asset protection trust – where under laws of certain states a settlor is entitled to convey the settlor’s own assets to a trust which is not reachable by the settlor’s creditors.
In a recent Massachusetts divorce action, Pfannenstiehl v. Pfannenstiehl, the marital estate was found to include the husband’s beneficial interest in an irrevocable spendthrift trust established by his father. Because the trust was not a party in the divorce case, the husband was ordered to make 24 monthly payments to his ex-wife insuring the ex-wife received her 60% share of the marital estate which included the value of the husband’s interest in the trust. Continue Reading