Beneficiary’s Creditor May Levy on Funds to be Distributed From the Trust

When a creditor moved for a judicial lien on any principal distributions to be made from a trust of which the debtor was a beneficiary, the beneficiary appealed, asserting that the lien was invalid under state law which prohibits a court from ordering satisfaction of a judgment from property held in trust for the debtor. 

In Community Bank of Elmhurst v. Klein, an Illinois appeals court held that the statute does not protect trust property once it is distributed nor does it require the creditor to wait until the beneficiary has received the funds “before seeking imposition of a lien against those funds.”

Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.