Spendthrift Trust Provision Hold Off Bankruptcy Trustee

When Faith Campbell created a living trust she made sure to include a spendthrift provision assuming that it would protect her money from any creditors of the beneficiaries. But after her death, a beneficiary went into bankruptcy and the bankruptcy court ruled that the trust had terminated upon completion of probate and the share of the beneficiary was available to the trustee.

In Safanda v. Castellano, the U.S. District Court ruled that the trust was protected under section 541(c)(2) which prevents a trust interest from being included in a bankruptcy estate. The court rejected the argument that “estate settled” in the trust meant the completion of the probate estate instead giving it a broader reading and protecting the assets in the process.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.