In Chatard v. Oveross, 2009 Cal. Slip Op. B213392 (Ct. App.–4th Dist., 2nd Div. Nov. 30, 2009), the California Court of Appeals held that the share of a trustee-beneficiary who breached her fiduciary duty could be reached by the other beneficiaries to satisfy the surcharge ordered for the breaches despite a spendthrift clause in the trust. The court held that this type of case was an exception to the rule that a spendthrift clause prevented creditors from attaching the beneficiary’s interest and the exception was endorsed by both the Restatement (Second) of Trusts § 257 and the Restatement (Third) of Trusts §59, comment a(2). Some of the breaches of fiduciary duty were using trust property to pay personal expenses, residing in trust property without paying rent, and paying herself excessive commissions.
Special thanks to Martin Beglieter (professor of law, Drake University) for providing this information.
