Petitions to Enforce Money Judgments Against Trust Beneficiaries

Petitions to Enforce Money Judgments Against Trust Beneficiaries

• March 21, 2016 - Abused Beneficiaries, Trust Litigation,

There are a variety of creditors that seek to enforce money judgments against California trust beneficiaries (beneficiaries who are also judgment debtors). California has a number of laws that identify what limits, if any, apply to the enforcement of these judgments.

California’s counties generally have a Department of Child Support Services. The department’s Mission Statement often defines the general goal for such departments. As an example:

“The mission of the Santa Clara County Department of Child Support Services is to promote the well-being of children and the self-sufficiency of families by delivering effective child support services to help meet the financial and medical needs of children.”

These departments make every effort to collect arrearages in child support payments. If a child support judgment debtor also happens to be a trust beneficiary, the department may seek a court order against the trust’s trustee to pay the amount of the arrearage. This effort can be complex.

The initial inquiry is whether the Trust is revocable or irrevocable. Generally at the death of a trustor or settlor the trust becomes irrevocable and a beneficiary’s rights are vested

California’s Statutory Approach to Support Judgments.

“The judgment debtor’s interest as a beneficiary of a trust is subject to enforcement of a money judgment only upon petition under this section by a judgment creditor to a court having jurisdiction over administration of the trust as prescribed in Part 5 (commencing with Section 17000) of Division 9 of the Probate Code. The judgment debtor’s interest in the trust may be applied to the satisfaction of the money judgment by such means as the court, in its discretion, determines are proper, including but not limited to imposition of a lien on or sale of the judgment debtor’s interest, collection of trust income, and liquidation and transfer of trust property by the trustee.” (Code of Civil Procedure, § 709.010(b).)

“Except as provided in subdivision (b) and in Sections 15304 to 15307, inclusive, if the trust instrument provides that a beneficiary’s interest in principal is not subject to voluntary or involuntary transfer, the beneficiary’s interest in principal may not be transferred and is not subject to enforcement of a money judgment until paid to the beneficiary.” (Probate Code, 15301(a).)

“After an amount of principal has become due and payable to the beneficiary under the trust instrument, upon petition to the court under Section 709.010 of the Code of Civil Procedure by a judgment creditor, the court may make an order directing the trustee to satisfy the money judgment out of that principal amount. The court in its discretion may issue an order directing the trustee to satisfy all or part of the judgment out of that principal amount.” (Probate Code, § 15301(b).)

“(a) As used in this section, “support judgment” means a money judgment for support of the trust beneficiary’s spouse or former spouse or minor child. ¶ (b) If the beneficiary has the right under the trust to compel the trustee to pay income or principal or both to or for the benefit of the beneficiary, the court may, to the extent that the court determines it is equitable and reasonable under the circumstances of the particular case, order the trustee to satisfy all or part of the support judgment out of all or part of those payments as they become due and payable, presently or in the future. ¶ (c) Whether or not the beneficiary has the right under the trust to compel the trustee to pay income or principal or both to or for the benefit of the beneficiary, the court may, to the extent that the court determines it is equitable and reasonable under the circumstances of the particular case, order the trustee to satisfy all or part of the support judgment out of all or part of future payments that the trustee, pursuant to the exercise of the trustee’s discretion, determines to make to or for the benefit of the beneficiary. ¶ (d) This section applies to a support judgment notwithstanding any provision in the trust instrument.” (Probate Code, § 15305.)

“(a) Notwithstanding any provision in the trust instrument, if a statute of this state makes the beneficiary liable for reimbursement of this state or a local public entity in this state for public support furnished to the beneficiary or to the beneficiary’s spouse or minor child, upon petition to the court under Section 709.010 of the Code of Civil Procedure by the appropriate state or local public entity or public official, to the extent the court determines it is equitable and reasonable under the circumstances of the particular case, the court may do the following: ¶ (1) If the beneficiary has the right under the trust to compel the trustee to pay income or principal or both to or for the benefit of the beneficiary, order the trustee to satisfy all or part of the liability out of all or part of the payments as they become due, presently or in the future. ¶ (2) Whether or not the beneficiary has the right under the trust to compel the trustee to pay income or principal or both to or for the benefit of the beneficiary, order the trustee to satisfy all or part of the liability out of all or part of the future payments that the trustee, pursuant to the exercise of the trustee’s discretion, determines to make to or for the benefit of the beneficiary. ¶ (3) If the beneficiary is a settlor or the spouse or minor child of the settlor and the beneficiary does not have the right under the trust to compel the trustee to pay income or principal or both to or for the benefit of the beneficiary, to the extent that the trustee has the right to make payments of income or principal or both to or for the beneficiary pursuant to the exercise of the trustee’s discretion, order the trustee to satisfy all or part of the liability without regard to whether the trustee has then exercised or may thereafter exercise the discretion in favor of the beneficiary. ¶ (b) Subdivision (a) does not apply to any trust that is established for the benefit of an individual who has a disability that substantially impairs the individual’s ability to provide for his or her own care or custody and constitutes a substantial handicap. If, however, the trust results in the individual being ineligible for needed public social services under Division 9 (commencing With Section 10000) of the Welfare and Institutions Code, this subdivision is not applicable and the provisions of subdivision (a) are to be applied.” (Probate Code, § 15306.)

If a judgment creditor of a support judgment (or the Department of Child Support Services) files a petition to enforce the judgment and alleges that the Trust assets are sufficient to pay the money judgment, the petition must also allege (and ultimately prove) that upon the death of the trustor the judgment debtor/trust beneficiary is entitled to immediate distribution of some or all of the assets of the Trust, or that the Trust instrument provides for payments of income and/or principal to the judgment debtor/trust beneficiary. Absent a showing of some type of a beneficiary’s current entitlement – however qualified – of a beneficial interest in a trust a judgment creditor has an uphill battle in enforcing the judgment. On the other hand, there often exists a beneficial interest that can be reached for judgment. This is a matter that those familiar with the issue may look at carefully.