Opinion ID: 1760309
Heading Depth: 3
Heading Rank: 2

Heading: The Spendthrift Trust Doctrine

Text: ¶ 11. The spendthrift trust doctrine is codified by statute in some states and is a judicially created doctrine in others. In Mississippi, where the doctrine was judicially created, our main authority on point is the case of Leigh v. Harrison, 69 Miss. 923, 11 So. 604 (1892). ¶ 12. In that case, Regina Harrison left a testamentary trust for the support of her insolvent son, Thomas, whose judgment creditor filed a bill in chancery to reach Thomas' beneficial interest. Leigh, 69 Miss. at 927, 11 So. at 604. Although the trust contained no spendthrift language, the Court held that under the circumstances, it could only have been Mrs. Harrison's intent that the trust should be protected from her son's creditors, lest a devise to him would be, in effect, a devise to them. Id. at 937, 11 So. at 607. In holding the trust to be immune from the claims of Thomas' creditors, the Court discussed the rights of creditors as follows: [W]e confess our inability to perceive how a creditor can be said to be injured or defrauded by the recognition of power in a donor to limit his bounty according to his own will. The creditor has no right to the property in the hands of the donor, and no equity, that we can perceive, in any disposition which the owner may make of it. If Mrs. Harrison had given Thomas nothing, upon what principle could his creditors complain? How are their rights (if they had none) infringed by any limitations she chose to impose upon the bequest she did make? It must be admitted that the right to make a will is not a natural right, and that no unlawful disposition may be made of the property devised. But what law is violated by disposing of property with a limitation which confines its benefit to the person of the donee? It cannot be said that it is against public policy for a testator to provide a support for a spendthrift child, for the interest of the public is that such child shall not become a public burden. Our statutes upon the subject of exemptions indicate a clear public policy that exemption from personal pauperism is of greater concern than the rights of creditors. A donation by will or deed with limitation against liability to the debts of the donee, cannot invite to undue credit being given to the donee, for such instruments are required to be recorded, and third persons may, by examination of the public records, learn the terms on which the bounty is to be enjoyed. Id. at 933-34, 11 So. at 606. On the policy of enforcing the wishes of donors, the Court quoted the following passage by the U.S. Supreme Court: [W]e do not see ... that the power of alienation is a necessary incident to a life-estate in real property, or that the rents and profits of real property and the interest and dividends of personal property may not be enjoyed by an individual without liability for his debts being attached as a necessary incident to such enjoyment. The doctrine is one which the English chancery court has ingrafted upon the common law for the benefit of creditors, and is comparatively of modern origin. We concede that there are limitations which public policy or general statutes impose upon all dispositions of property  such as those designed to prevent perpetuities and accumulations of real estate in corporations and ecclesiastical bodies. We also admit that there is a just and sound policy, peculiarly appropriate to the jurisdiction of courts of equity, to protect creditors against frauds upon their rights, whether they be actual or constructive frauds. But the doctrine that the owner of property, in the free exercise of his will in disposing of it, cannot so dispose of it, but that the object of his bounty, who parts with nothing in return, must hold it subject to the debts due his creditors, though that may soon deprive him of all the benefits sought to be conferred by the testator's affection or generosity, is one which we are not prepared to announce as the doctrine of this court. Id. at 934-35, 11 So. at 606 (quoting Nichols v. Eaton, 91 U.S. 716, 725, 23 L.Ed. 254 (1875)). On another policy consideration favoring the enforcement of spendthrift trust provisions, the Court stated: We can perceive no reason why courts of equity, whose principles and administration give rise to and protect these estates, should not so mold and preserve the trusts declared, as to protect and give effect to trusts for improvident and spendthrift persons, who are objects of solicitude to their parents and friends. It is not more generally true that married women need the intervention of equity to protect their estates from the avarice or improvidence of husbands, than that the unfortunate class called spendthrifts require like restraint from the consequences of their own vices and extravagance. Leigh, 69 Miss. at 935-36, 11 So. at 606-607. ¶ 13. In the case of Calhoun v. Markow, 168 Miss. 556, 151 So. 547 (1933), the beneficiary's bankruptcy trustee filed a bill in chancery to attach the beneficiary's interest in a spendthrift trust in order to satisfy the claims of the beneficiary's creditors. On appeal after the chancery court denied the claim, this Court held: We think the chancellor was correct in his holding that neither the property nor the income were subject to [the beneficiary's] debts. The property covered by the trust instrument belonged to [the donor], and she could deal with it as she pleased, provided it did not infringe any of the provisions of law; and the decisions in this state show that a trust of this kind is lawful and that it is permissible for a parent to place property in the hands of a trustee to secure a child from poverty, want, or misfortune, and to provide for the necessities of life for such child. A creditor has no right to look to property in such a trust for the satisfaction of his demands. Creditors are charged with a knowledge of the law and the provisions of such trusts. Calhoun, 168 Miss. at 565-66, 151 So. at 549. ¶ 14. These two cases, standing for the broad principle that spendthrift trust assets are not subject to the claims of the beneficiary's creditors, comprise almost the entire extent of this Court's pronouncements on the matter. In another case, we held that the spendthrift trust doctrine does not protect the beneficiary's interest from his creditors where the trust is a self-settled trust, i.e., where the trust is for the benefit of the donor. Deposit Guaranty Nat'l Bank v. Walter E. Heller & Co., 204 So.2d 856, 859 (Miss. 1967). Although this Court has had no opportunity to establish any other exceptions to the doctrine, there are four other exceptions which have been recognized in other jurisdictions and are stated in the Restatement (Second) of Trusts § 157 (1959) as follows: Although a trust is a spendthrift trust or a trust for support, the interest of the beneficiary can be reached in satisfaction of an enforceable claim against the beneficiary, (a) by the wife or child of the beneficiary for support, or by the wife for alimony; (b) for necessary services rendered to the beneficiary or necessary supplies furnished to him; (c) for services rendered and materials furnished which preserve or benefit the interest of the beneficiary; (d) by the United States or a State to satisfy a claim against the beneficiary. Although the rule does not list an exception for involuntary tort creditors, the comment on the scope of the rule provides: The enumeration in this Section of situations in which the interest of the beneficiary of a spendthrift trust or of a trust for support can be reached is not necessarily exclusive. The interest of a beneficiary of a spendthrift trust or a trust for support may be reached in cases other than those herein enumerated, if considerations of public policy so require. Thus it is possible that a person who has a claim in tort against the beneficiary of a spendthrift trust may be able to reach his interest under the trust. Restatement (Second) of Trusts § 157 cmt. (a) (1959). ¶ 15. In The Law of Trusts, Austin W. Scott explained as follows: There is little authority on the question whether the interest of the beneficiary of a beneficiary of a spendthrift trust can be reached by persons against whom he has committed a tort. In the absence of authority it was felt by those who were responsible for preparation of the Restatement of Trusts that no categorical statement could be made on the question. It is believed, however, that there is a tendency to recognize that the language of the earlier cases to the effect that no creditor can reach the interest of a spendthrift trust is too broad, and that in view of the cases that have been cited in the previous sections allowing various classes of claimants to reach the interest of the beneficiary, the courts may well come to hold that the settlor cannot put the interest of the beneficiary beyond the reach of those to whom he has incurred liabilities in tort. Austin W. Scott, The Law of Trusts § 157.5 (4th ed. 1987). ¶ 16. Legal scholars for years have called for the recognition of a public policy exception to the spendthrift trust doctrine in favor of tort judgment creditors. [2] However, there is little case law on the matter. In Thackara v. Mintzer, 100 Pa. 151, 154-55 (1882), the Pennsylvania Supreme Court, in upholding the validity of a spendthrift trust, declared in dicta that [w]hether the judgment be for a breach of contract or for a tort, matters not. In Kirk v. Kirk, 254 Or. 44, 456 P.2d 1009 (1969), the Oregon Supreme Court held that the interest of a spendthrift trust created by the United States for the Klamath Tribe of American Indians was unreachable by the Indian beneficiary's tort judgment creditor. However, at least one state, Louisiana, has recognized an exception to the spendthrift trust doctrine in favor of tort judgment creditors, which doctrine and exception were codified by the Louisiana Legislature. [3]