Contingent Future Interest In Self-Settled Trust
An attorney sent me an email question about his client’s possible interest in an irrevocable trust. The client apparently set up the irrevocable trust for the benefit of other family members. He transferred assets irrevocably to fund the trust. The trust was established to “freeze” the value of the trust assets for estate tax planning. The grantor transferred $5 million in to the trust.
The trust agreement provided for an independent trust protector, that is someone who has no beneficial interest under the trust. The trust protector has the discretion to appoint (i.e, give away) trust assets to a defined group of people including the grantor himself. The issue is whether a future creditor of the grantor could levy upon the grantor’s right to receive trust property through appointment by the independent trustee.
Assuming the grantor has no current legal issues this plan appears to be legitimate valid and effective estate tax planning and not a fraudulent transfer to protect $ 5 million from creditors. If the grantor encountered future legal problems the judgment creditor could either garnish money owed by the trust to the grantor or levy upon the grantor’s interest in the trust. Until and unless the independent trustee exercises his discretionary power of appointment in favor of the grantor the trust does not owe the grantor money subject to garnishment and the grantor has no vested interest in the trust subject to levy.
Under Florida law a debtor’s future interest in a trust is not subject to creditor attack; a creditor cannot levy upon trust assets until the assets are actually received by the debtor.
Trusts set up by the debtor for his own benefit, the self-settled trust, enjoys no such asset protection from the debtor’s creditors. In this case, I do not think the grantor’s possible benefit through the decision of an unrelated third party trust protector is sufficient to make this trust a “self-settled” trust especially in the light of a legitimate estate planning motive.
