Chapter 2 - § 2.12 • SPENDTHRIFT EXCEPTION CREDITORS

• Jurisdiction: Colorado

§ 2.12 • SPENDTHRIFT EXCEPTION CREDITORS

As to third-party settled trusts, subject to certain exceptions, "if the terms of a trust provide that a beneficial interest shall not be transferrable by the beneficiary or subject to the claims of the beneficiary's creditors, the restraint on voluntary and involuntary alienation of the trust is valid."³⁰⁷ However, state law may allow certain claimants to reach the assets of a trust regardless of the existence of a valid spendthrift exception. "Alimony creditors, child support creditors, furnishers of necessary services, tax authorities, and . . . tort victims may be permitted to reach a spendthrift trust, though the precise scope of the exception and rights accorded under it depend upon state law."³⁰⁸

The Restatement (Third) of Trusts § 59 states:

The interest of a beneficiary in a valid spendthrift trust can be reached in satisfaction of an enforceable claim against the beneficiary for
(a) Support of a child, spouse, or former spouse; or
(b) Services or supplies provided for necessities or for the protection of the beneficiary's interest in the trust.

Section 503(b) of the Uniform Trust Code also extends spendthrift exception status to alimony, child support obligations, and judgment creditors who have provided services for the protection of the beneficiary's interest in the trust³⁰⁹ but, unlike the Restatement (Third), not for necessities.³¹⁰

The treatment of alimony and child support claimants as spendthrift exception creditors varies substantially among the states, but one author, in a 50-state survey, has grouped the states into three main categories.³¹¹ Some states except both child support and alimony creditors from spendthrift protection by reason of adoption of their version of the Uniform Trust Code, a statute codified independent of the Uniform Trust Code, or by reason of judicial exception.³¹² Other states have excepted child support creditors from spendthrift protection, while denying favored status to alimony claims.³¹³ A third group of states does not except child support and alimony creditors from spendthrift protection, but within this category the author distinguishes between those states that explicitly deny exception status to child support and alimony creditors and those that have recognized spendthrift validity, but have not decided whether it bars child support or alimony claimants.³¹⁴

Section 504(c) of the Uniform Trust Code provides:

To the extent a trustee has not complied with a standard of distribution or has abused a discretion . . . a distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary's child, spouse, or former spouse and the court shall direct the trustee to pay to the child, spouse, or former spouse such

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