Opinion ID: 2784748
Heading Depth: 3
Heading Rank: 1

Heading: Applicable California Statutes

Text: The California Probate Code recognizes the validity of spendthrift provisions that restrict transfer of a beneficiary’s FREALY V. REYNOLDS 5 interest in income and principal, so long as that interest hasn’t yet been paid to the beneficiary. See Cal. Prob. Code §§ 15300, 15301(a). Section 15301(a) permits the restraint against transfer of trust principal, subject to certain exceptions set forth in sections 15301(b) and 15304–07: Except as provided in subdivision (b) and in Sections 15304 to 15307, inclusive, if the trust instrument provides that a beneficiary’s interest in principal is not subject to voluntary or involuntary transfer, the beneficiary’s interest in principal may not be transferred and is not subject to enforcement of a money judgment until paid to the beneficiary. Cal. Prob. Code § 15301(a). One of these exceptions, section 15306.5(a), allows general creditors to satisfy money judgments out of payments to which the beneficiary is entitled. The section provides: Notwithstanding a restraint on transfer of the beneficiary’s interest in the trust under Section 15300 or 15301, and subject to the limitations of this section, upon a judgment creditor’s petition under Section 709.010 of the Code of Civil Procedure, the court may make an order directing the trustee to satisfy all or part of the judgment out of the payments to which the beneficiary is entitled under the trust instrument or that the trustee, in the exercise of the trustee’s discretion, has determined or determines in the future to pay to the beneficiary. 6 FREALY V. REYNOLDS Cal. Prob. Code § 15306.5(a). Creditors, upon petition to the court, may thus reach payments to which the beneficiary is entitled subject to “the limitations of this section.” Id. One of the limitations states as follows: An order under this section may not require that the trustee pay in satisfaction of the judgment an amount exceeding 25 percent of the payment that otherwise would be made to, or for the benefit of, the beneficiary. Cal. Prob. Code § 15306.5(b). Along the same lines, section 15306.5(f) specifies that “the aggregate of all orders for satisfaction of money judgments against the beneficiary’s interest in the trust may not exceed 25 percent of the payment that otherwise would be made to, or for the benefit of, the beneficiary.” Cal. Prob. Code § 15306.5(f). Section 15306.5(c) further restricts creditors’ access, stating that “[a]n order under this section may not require that the trustee pay in satisfaction of the judgment any amount that the court determines is necessary for the support of the beneficiary and all the persons the beneficiary is required to support.” Cal. Prob. Code § 15306.5(c). Section 15301(b) contains another exception to the general rule against transfer of a spendthrift trust beneficiary’s interest in principal: After an amount of principal has become due and payable to the beneficiary under the trust instrument, upon petition to the court under Section 709.010 of the Code of Civil Procedure by a judgment creditor, the court FREALY V. REYNOLDS 7 may make an order directing the trustee to satisfy the money judgment out of that principal amount. Cal. Prob. Code § 15301(b). And section 15307, titled “Income in excess of amount for education and support; application to creditors’ claim,” states: Notwithstanding a restraint on transfer of a beneficiary’s interest in the trust under Section 15300 or 15301, any amount to which the beneficiary is entitled under the trust instrument or that the trustee, in the exercise of the trustee’s discretion, has determined to pay to the beneficiary in excess of the amount that is or will be necessary for the education and support of the beneficiary may be applied to the satisfaction of a money judgment against the beneficiary. Upon the judgment creditor’s petition under Section 709.010 of the Code of Civil Procedure, the court may make an order directing the trustee to satisfy all or part of the judgment out of the beneficiary’s interest in the trust. Cal. Prob. Code § 15307. Unlike sections 15306.5, 15301(b) and 15307, which apply to general creditors, the remaining exceptions pertain to either preferred creditors or the unique situation in which the settlor of the trust is also a beneficiary. See Cal. Prob. Code § 15304 (invalidating the restraint against transfer 8 FREALY V. REYNOLDS where the beneficiary is also the settlor); id. § 15305 (court may order the trust to satisfy a money judgment for support of the beneficiary’s spouse, former spouse or minor child); id. § 15305.5 (same, where there is a judgment against the beneficiary awarding restitution for the commission of a felony); id. § 15306 (same, where the beneficiary is liable for reimbursement to the state of California for public support furnished to him or his spouse or minor child).