{"id":96224,"date":"2025-02-18T22:13:43","date_gmt":"2025-02-18T22:13:43","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/legal\/is-a-conveyance-of-a-beneficial-interest-of-a-trust-with-a-spendthrift-clause-void-or-voidable\/"},"modified":"2025-02-18T22:13:43","modified_gmt":"2025-02-18T22:13:43","slug":"is-a-conveyance-of-a-beneficial-interest-of-a-trust-with-a-spendthrift-clause-void-or-voidable","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=96224","title":{"rendered":"Is a Conveyance of a Beneficial Interest of a Trust With a Spendthrift Clause Void or Voidable?"},"content":{"rendered":"


\n<\/p>\n

\n

A standard revocable trust is a trust that is fully revocable and changeable during the lifetime of the settlor. A typical revocable trust has provision for the death of the settlor.\u00a0 If the trust is going to continue on for the benefit of beneficiaries, the trust will typically contain language prohibiting a beneficiary for assigning, transferring, selling or pledging such interest to a third party.\u00a0 There might also be language clarifying that such interest should not be subject to the creditors of the beneficiary.\u00a0 This protective language is commonly referred to as a \u201cspendthrift clause.\u201d<\/p>\n

What is a Spendthrift Clause?<\/h2>\n

One of the earliest appearances of the \u201cspendthrift\u201d word is in the case of Morey\u2019s Appeal<\/a>, 57 N.H. 54 (1876) from the New Hampshire Supreme Court:<\/p>\n

An auditor was appointed to report the facts in the case. The auditor reported in substance that no evidence was offered tending to prove that the appellant was a person liable to be put under guardianship on account of excessive drinking, gaming, idleness, debauchery, or vicious habits of any kind, but that evidence was offered tending to show foolish or weak-minded habits of the appellant in the management of money; and the auditor therefore reported that the appellee failed to prove that at the time of making said decree, or at any time before or since then, said Morey was a spendthrift, or that at the time of making said decree there was sufficient cause for the appointment of a guardian over him.<\/p>\n

Since that time, \u201cspendthrift clauses\u201d have commonly been used in trusts to protect beneficiaries from their own bad conduct.\u00a0 Here are two examples of spendthrift clause language in trusts:<\/p>\n

The interest of a beneficiary in principal or income shall not be subject to the claims of any creditor, any spouse for alimony or support, ot others, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered.<\/p>\n

All payments of principle and income payable or to become payable to the beneficiary of any trust created hereunder shall not be subject to anticipation, assignment, pledge, sale, or transfer in any manner, nor shall any interest be liable or subject to the debts, contracts, obligations, or liabilities of any beneficiary.<\/p>\n

Void v. Voidable?<\/h2>\n

So if a beneficiary sells or assigns an interest in a trust subject to a spendthrift clause, is such transfer void or voidable?\u00a0 And why does it matter?\u00a0 The case of Haymond v. Haymond<\/a>, 22-621 (W.V. 2024) from the West Virginia Supreme Court address the void v. voidable question.\u00a0 Two beneficiaries of a trust with a spendthrift clause transferred their interest to one of the trustees of the trust.\u00a0 Twenty years later, those two beneficiaries brought suit, seeking a declaration that the transfer of their interests were void, not voidable.<\/p>\n

Why does it matter whether the assignment is void or voidable?\u00a0 The statute of limitations.\u00a0 A void transfer is void from inception, so no statute of limitations will typically apply.\u00a0 A voidable transaction is one that could be voided, if a timely lawsuit is brought, alleging reasons why the transfer should be treated as void.\u00a0 A voidable transaction is usually subject to a statute of limitations based on when the transfer took place.\u00a0 In the Haymond case, the statute of limitations had long expired were the assignment merely voidable.\u00a0 If void, the assignment could be declared void, to the benefit of the original beneficiaries.<\/p>\n

The West Virginia Supreme Court held that the transfer of a beneficial interest subject to a spendthrift clause is void, not voidable, as follows:<\/p>\n

\n

We have held that \u201c[t]he paramount principle in construing or giving effect to a trust is that the intention of the settlor prevails, unless it is contrary to some positive\u00a0rule of law or principle of public policy.\u201d\u00a0 And, as we have established, the settlor had every right to restrain her property for the benefit of her grandchildren by preventing them from transferring their interests until such time as the trust terminated and their legal title vested. It is contrary to the intent of the settlor in including such a provision to render an attempted sale as merely voidable.<\/p>\n

Consistent with the logic we apply here, commentators recognize that \u201c[a] beneficiary\u2019s attempted transfer of her interest under a spendthrift trust is generally treated as void[.]\u201d\u00a0 The United States Court of Appeals for the Tenth Circuit likewise succinctly stated that \u201c[t]he rule is well settled that an attempt to alienate the interest of a beneficiary of a spendthrift trust is void and unenforceable[.]\u201d\u00a0 It founded that conclusion on the prerogative of the settlor to set terms, not the wishes of the beneficiary or the interests of third parties:<\/p>\n

[t]he doctrine of spendthrift trusts rests upon the right of a donor to give his property to another upon such conditions and restrictions against alienation as he shall see fit. As the property does not belong to the donee prior to the creation of the trust, and after the creation of the trust the donee\u2019s interest is subject to the conditions attached by the donor, creditors or transferees of the donee have no right to rely upon it for the satisfaction of their claims.<\/p>\n

Attempts to alienate interests in violation of a spendthrift provision are thus void ab initio: \u201cwhen it is clear that the testator intended to create a spendthrift trust the court will not permit a beneficiary to dispose of the trust property or any part thereof in contravention of the terms of the will.\u201d<\/p>\n<\/blockquote>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"

A standard revocable trust is a trust that is fully revocable and changeable during the lifetime of the settlor. A typical revocable trust has provision for the death of the settlor.\u00a0 If the trust is going to continue on for the benefit of beneficiaries, the trust will typically contain language prohibiting a beneficiary for assigning, […]<\/p>\n","protected":false},"author":1,"featured_media":96225,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[97],"tags":[17203,43633,45560,11290,45561,1313,24139,14488,45562],"dealstore":[],"offerexpiration":[],"class_list":["post-96224","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal","tag-beneficial","tag-clause","tag-conveyance","tag-interest","tag-spendthrift","tag-trust","tag-trust-litigation","tag-void","tag-voidable"],"yoast_head":"\nIs a Conveyance of a Beneficial Interest of a Trust With a Spendthrift Clause Void or Voidable? - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=96224\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is a Conveyance of a Beneficial Interest of a Trust With a Spendthrift Clause Void or Voidable? - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"A standard revocable trust is a trust that is fully revocable and changeable during the lifetime of the settlor. 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