SPENDTHRIFT TRUST CASE LAW UPDATE
Burns v. Miller, Hiersche, Martens & Hayward, P.C. 948 S.W.2d 317 (Tex. App—Dallas 1997 writ denied)
The Trial Court ordered beneficiary to turn over property to a receiver for use in paying a creditor. The Trial Court included all disbursements from Spendthrift Trusts within the scope of the turnover order.
The Appellate Court reversed holding that beneficiary’s interest in Spendthrift Trust assets is exempt property under the turnover statute (Civ. Prac. & Rem. Code §31.002). The creditor pointed out that once the trustee pays or delivers the trust assets to the beneficiary they are no longer exempt. Trust Code § 112.035 (a). However, the turnover statute provides that a court may not enter or enforce an order that requires the turnover of “the proceeds of, or the disbursement of, property exempt under any statute.” Civ. Prac. & Rem. Code § 31.002(f). “Thus, even when property is no longer exempt under any other statute, if it represents proceeds or disbursements of exempt property, it is not subject to a turnover order.” Burns at 323.
Conclusion: Distributions from Spendthrift Trusts are protected from turnover orders even though the property is in the possession of a beneficiary.
In re: BancorpSouth Bank 2014 Tex. App. LEXIS 4052
The Trial Court entered into a withholding order attempting to circumvent the spendthrift provisions of the trust. The Appellate Court concluded that that the Trial Court abused its discretion and granted writ of mandamus. The Appellate Court stated that:
Although beneficial interests in trusts are generally assignable, attempts to assign such interests are invalid when they are subject to a spendthrift provision in the trust.
Neither the corpus, the accrued income which has not been paid to the beneficiary or the future income to be paid to a beneficiary of a spendthrift trust are subject to the claims of the creditors of the beneficiary while those amounts are in the hands of the trustee.
Orders under Tex. Fam. Code Ann. §§ 154.007 and 8.101 are creatures of specific statutes that create an exception to the general limitation on garnishment of current wages. There is no similar statute permitting a trial court to redirect payments from a spendthrift trust to a spouse or former spouse.
Conclusion: A court cannot order the trustee of a spendthrift trust to make distributions for the purpose of spousal support.