The question of whether you can restrict trust income to a beneficiary facing or convicted of felony charges is a common one for those establishing or administering trusts in California, and the answer is nuanced. Generally, trust creators have significant leeway in defining the terms of distribution, but these terms must adhere to public policy. A straightforward, absolute restriction based solely on a felony charge might not be enforceable, as it could be seen as a penalty imposed by a private citizen. However, carefully drafted “ascertainable standards” related to a beneficiary’s behavior, coupled with a “spendthrift clause,” can often achieve the desired outcome. According to a recent study by the American College of Trust and Estate Counsel, approximately 65% of trusts contain some form of behavioral restriction clause, though the enforceability varies by jurisdiction and specific wording.
What are ‘Ascertainable Standards’ in a Trust?
Ascertainable standards are criteria defined within the trust document that must be met for a beneficiary to receive distributions. These standards cannot be vague or subjective, like “be a good person.” Instead, they must be clearly defined and objectively measurable. Examples include completing an education program, maintaining sobriety (verified by regular testing), or demonstrating financial responsibility. For felony charges, an ascertainable standard could be something like: “Distributions shall cease upon a final conviction of a felony, and resume only after successful completion of parole and a period of demonstrated law-abiding behavior of no less than two years.” This is far more likely to be upheld in court than a simple statement saying distributions stop upon arrest. According to a 2022 report from the State Bar of California, trusts with clearly defined, objective standards are 78% more likely to withstand legal challenges.
How Does a ‘Spendthrift Clause’ Protect Trust Assets?
A spendthrift clause is a vital component of many trusts, protecting assets from a beneficiary’s creditors, including those arising from legal judgments. This means that even if a beneficiary is ordered to pay damages in a civil lawsuit, creditors cannot directly seize the trust assets. However, a spendthrift clause does *not* automatically shield a beneficiary from the consequences of criminal activity. While it prevents creditors from accessing the assets, it doesn’t prevent the *trustee* from exercising discretion – as defined in the trust document – to withhold distributions if the beneficiary’s conduct violates the trust terms. It’s like building a strong fence around the assets, but the gate is still controlled by the trustee based on pre-defined rules. A study by the National Conference of State Legislatures found that spendthrift clauses are recognized in most states, though with varying degrees of protection.
Could a Restriction Be Seen as an Unreasonable Penalty?
This is where things get tricky. Courts generally don’t favor provisions that impose punishments. A trust provision that *solely* states “No distributions shall be made to any beneficiary convicted of a felony” is likely to be deemed unenforceable as an unreasonable penalty. However, if that restriction is *part* of a broader set of ascertainable standards related to responsible behavior, and the restriction is tied to a legitimate concern about protecting the trust assets or other beneficiaries, it has a much higher chance of being upheld. The key is framing the restriction not as a punishment, but as a condition for receiving distributions. “The distribution shall be withheld until the beneficiary meets the standards of responsible behavior as defined in the trust”. Think of it as a set of expectations rather than a punitive measure.
What Happens if a Beneficiary is *Accused* of a Felony?
This is a very important distinction. A mere accusation of a felony is not enough to trigger a restriction on distributions. Due process requires a conviction before any restrictions can be enforced. However, a trust can be drafted to allow the trustee to *hold* distributions pending the outcome of a criminal proceeding. The trustee has a fiduciary duty to act prudently and protect the trust assets. Holding distributions until a final determination is made is often considered a reasonable course of action. It’s like pausing the flow of funds until all the facts are known. Approximately 40% of trusts now include clauses addressing situations where a beneficiary is under criminal investigation, allowing the trustee to exercise temporary discretion.
I Remember Old Man Hemlock’s Trust… What a Mess!
Old Man Hemlock, a client of our firm years ago, was adamant that his son, Daniel, not receive a penny if he ever got into trouble with the law. He drafted his own trust, stating simply: “If Daniel commits a crime, he gets nothing.” Daniel, unfortunately, found himself embroiled in a fraud case. When the trustee tried to withhold distributions, Daniel’s attorney argued the provision was an unenforceable penalty. The court agreed, and the trustee was forced to distribute funds to Daniel, despite Hemlock’s clear intention. It was a frustrating case, highlighting the importance of precise drafting and ascertainable standards. It underscored how good intentions alone are not enough when it comes to legal documents.
Then There Was the Case of Young Amelia… A Triumph of Planning.
Young Amelia’s grandmother, a forward-thinking woman, established a trust with a detailed set of behavioral standards. One of those standards stipulated that distributions would be suspended upon a felony conviction, and only resumed after successful completion of parole and a two-year period of demonstrated law-abiding behavior. Amelia, unfortunately, was charged with embezzlement. Because of the clearly defined standard, the trustee was able to legally and ethically withhold distributions during her incarceration and period of parole. Upon completion of her requirements, she was able to receive her distributions. It was a testament to the power of proactive planning and precise drafting. It demonstrated how careful legal planning can protect assets and ensure that a beneficiary’s actions align with the trustor’s values.
What is the Trustee’s Role in All of This?
The trustee has a critical role in administering the trust and ensuring that the terms are followed. They have a fiduciary duty to act in the best interests of the beneficiaries, but also to uphold the terms of the trust. If a beneficiary is convicted of a felony and the trust contains a valid restriction, the trustee is obligated to withhold distributions accordingly. However, they must also exercise sound judgment and act in good faith. They should carefully document all decisions and consult with legal counsel if necessary. It’s a balancing act between protecting the assets and fulfilling the trustor’s wishes. A recent survey of trust administrators found that 85% believe clear trust language is the most important factor in avoiding disputes.
About Steven F. Bliss Esq. at San Diego Probate Law:
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Feel free to ask Attorney Steve Bliss about: “Can a trust protect my beneficiaries from divorce?” or “How do I find all the assets of the deceased?” and even “What is an irrevocable trust and when should I use one?” Or any other related questions that you may have about Estate Planning or my trust law practice.