NEW YORK TRUSTS AND CLAIMS IN DIVORCE UNDER NEW YORK LAW STEP Israel Annual Meeting Tel Aviv, Israel June 21, 2017 Michael W. Galligan Partner, Phillips Nizer LLP New York, NY Court Plaza North 25 Main Street Hackensack NJ 07601 201.487.3700 Phone 201.646.1764 Fax 600 Old Country Road Garden City NY 11530 516.229.9400 Phone 516.228.9612 Fax 666 Fifth Avenue New York NY 10103 212.977.9700 Phone 212.262.5152 Fax www.phillipsnizer.com Resourceful Representation 1
OUTLINE I. TRUSTS AND CLAIMS FOR PROPERTY DIVISION UNDER CURRENT NEW YORK LAW: II. TRUSTS AND CLAIMS FOR MAINTENANCE AND SUPPORT UNDER CURRENT NEW YORK LAW III. ENFORCEMENT OF DIVORCE-RELATED JUDGMENTS AGAINST TRUSTS UNDER CURRENT NEW YORK LAW IV. PROPOSALS TO MODIFY NEW YORK LAW My thanks to my colleague, Mitchell Levitin, Counsel in the Matrimonial Department of Phillips Nizer LLP, for his advice and comments on this Outline. 2
I. TRUSTS AND CLAIMS FOR PROPERTY DIVISION IN DIVORCE UNDER CURRENT NEW YORK LAW A. NEW YORK IS A SEPARATE PROPERTY STATE FOR PURPOSE OF GENERAL PROPERTY LAW, WHETHER PROPERTY IS ACQUIRED BEFORE OR DURING THE MARRIAGE. THE NON-TITLED SPOUSE GENERALLY HAS NO CLAIM (OUTSIDE OF DIVORCE) DURING LIFETIME OR AT DEATH TO TREAT PART OF THE SPOUSE S PROPERTY AS BELONGING TO THE NON-TITLED SPOUSE E.G., NO COMMUNITY PROPERTY CLAIMS OR SHARING OF MARITAL SURPLUS AT DEATH. 3
B. SPOUSES MAY ELECT TO HOLD PROPERTY IN JOINT NAMES AND THUS, IN A SENSE, CONSTRUCT THEIR OWN SELF-MADE COMMUNITY PROPERTY REGIME: 1. EACH SPOUSE IS PRESUMED TO HAVE AN UNDIVIDED 100% INTEREST WHEN PROPERTY IS TITLED IN THE NAMES OF SPOUSES AS JOINT TENANTS WITH RIGHT OF SURVIVORSHIP. 2. EACH SPOUSE IS ALSO PRESUMED TO HAVE AN UNDIVIDED 100% INTEREST IN PROPERTY TITLED IN THE NAMES OF SPOUSES AS TENANTS BY THE ENTIRETY. 3. PRESUMPTION OF OWNERSHIP IN EQUAL SHARES FOR PROPERTY TITLED IN SPOUSES AS TENANTS IN COMMON IF THE DEED OR ANALOGOUS INSTRUMENT DOES NOT SPECIFY THE PERCENTAGES. 4
C. NEW YORK IS AN EQUITABLE DISTRIBUTION STATE FOR PURPOSES OF PROPERTY DIVISION IN DIVORCE * 1. DEFINITION OF PROPERTY IS VERY BROAD AND CAN INCLUDE INTERESTS IN TRUSTS SUCH AS: a. A FUTURE INTEREST IN A TRUST. UNDER CURRENT NEW YORK LAW, A TRUST BENEFICIARY CAN ALIENATE AN INTEREST IN THE PRINCIPAL OF A TRUST UNLESS THE TRUST INSTRUMENT CONTAINS AN EXPRESS PROHIBITION AGAINST SUCH TRANSFERS. * NY DOMESTIC RELATIONS LAW SECTION 236. 5
b. CURRENT INTERESTS IN TRUSTS CERTAIN INTERESTS IN THE INCOME OF TRUSTS EXCEEDING $10,000 A YEAR, WHICH MAY BE TRANSFERRED AS GIFTS TO OR FOR THE BENEFIT OF A SPOUSE AND CERTAIN OTHER CLOSE FAMILY MEMBERS, BUT NOT IN ANY FORM OF SALE OR EXCHANGE. 2. KEY DISTINCTION BETWEEN MARITAL PROPERTY AND SEPARATE PROPERTY a. MARITAL PROPERTY:... ALL PROPERTY ACQUIRED BY EITHER OR BOTH SPOUSES DURING THE MARRIAGE... REGARDLESS OF THE FORM IN WHICH TITLE IS HELD EXCEPT AS OTHERWISE PROVIDED IN A VALID MARITAL AGREEMENT 6
b. SEPARATE PROPERTY: 1) PROPERTY ACQUIRED BEFORE MARRIAGE OR PROPERTY ACQUIRED BY BEQUEST, DEVICE OR DESCENT, OR GIFT FROM A PARTY OTHER THAN THE OTHER SPOUSE. 2) COMPENSATION FOR PERSONAL INJURIES 3) PROPERTY ACQUIRED IN EXCHANGE FOR OR THE INCREASE IN VALUE OF SEPARATE PROPERTY, EXCEPT TO THE EXTENT SUCH APPRECIATION IS DUE IN PART TO THE CONTRIBUTIONS OR EFFORTS OF EITHER SPOUSE. 4) PROPERTY DESCRIBED AS SEPARATE PROPERTY IN A VALID MARITAL AGREEMENT. 7
3. ASSETS OF A REVOCABLE TRUST ESTABLISHED BY A SPOUSE AND FUNDED WITH MARITAL PROPERTY, EVEN IF THE ASSETS WERE TITLED IN THE GRANTOR SPOUSE S NAME ONLY AT THE TIME OF THE TRANSFER, WOULD BE CONSIDERED MARITAL PROPERTY. 4. ASSETS OF AN IRREVOCABLE TRUST SETTLED BY A SPOUSE AND FUNDED WITH PROPERTY THAT WOULD HAVE BEEN CONSIDERED MARITAL PROPERTY IF A DIVORCE PROCEEDING WERE PENDING, EVEN IF TITLED ONLY IN THE GRANTOR SPOUSE S NAME, MAY NOT TECHNICALLY CONSTITUTE MARITAL PROPERTY AT THE TIME OF THE DIVORCE BUT CAN BE TAKEN INTO ACCOUNT IN THE EQUITABLE DIVISION OF MARITAL PROPERTY. 8
EXAMPLE: ASSUME MARITAL PROPERTY AT TIME OF PENDING DIVORCE IS $1 MILLION. A SPOUSE, FIVE YEARS EARLIER, FUNDED AN IRREVOCABLE TRUST WITH $200,000 OF PROPERTY THAT WOULD HAVE BEEN CONSIDERED MARITAL PROPERTY AT THE TIME. COURT CAN ADD THE $200,000 TO THE $1 MILLION, DIVIDE THE $1,200,000 EQUALLY AND GIVE THE NON-GRANTOR SPOUSE $600,000 AND THE GRANTOR SPOUSE $400,000. 9
THIS IS SUPPORTED BY NY DRL SECTION 2036(B)(5)(d), WHICH INCLUDES AMONG THE FACTORS FOR EQUITABLE DISTRIBUTION. THE TRANSFER OR ENCUMBRANCE MADE IN CONTEMPLATION OF A MATRIMONIAL ACTION WITHOUT FAIR CONSIDERATION THE WASTEFUL DISSIPATION OF MARITAL PROPERTY BY EITHER SPOUSE ANY OTHER FACTOR WHICH THE COURT SHALL EXPRESSLY FIND TO BE JUST AND PROPER. 10
SEE RIECHERS V. RIECHERS, 178 MISC. 2d (SUP. CT. WESTCHESTER CTY. 1998): VALUE OF ASSETS TRANSFERRED TO A COOK ISLAND ASSET PROTECTION TRUST WITH ASSETS EARNED DURING MARRIAGE, EVEN IF TRANSFERRED FOR VALID ASSET PROTECTION PURPOSES, CONSTITUTE MARITAL PROPERTY. 11
SEE TRAFELET V. TRAFELET, 2017 N.Y. APP. DIV. (FIRST DEPARTMENT 2017): HUSBAND CREATED TRUSTS EARLY IN THE MARRIAGE FOR THE BENEFIT OF THEIR CHILDREN, FUNDED WITH 40% OF HUSBAND S BUSINESS INTERESTS, WHICH THE COURT SAID WAS MARITAL PROPERTY. THE ASSETS IN THE TRUSTS APPRECIATED DURING THE MARRIAGE IN STEP WITH THE SUCCESSFUL GROWTH OF HUSBAND S BUSINESSES. THE COURT DIRECTED DISCOVERY ON THE ASSUMPTION THAT THE TRUST ASSETS CONSTITUTED MARITAL ASSETS. 12
TO SAME EFFECT: PENA V. ALVES, 50 A.D.3d 336 (APP. DIV. FIRST DEPARTMENT 2018): DISTRIBUTIONS OF SEVERANCE PAY CONTRIBUTED TO EDUCATIONAL TRUST TO BENEFIT COUPLE S CHILDREN HELD TO BE MARITAL PROPERTY. 13
BUT TO THE CONTRARY MARKOWITZ V. MARKOWITZ, 146 A.D.3d 872 (N.Y. APP. DIV. SECOND DEPARTMENT, 2017): AWARD OF CASH SURRENDER VALUE OF LIFE INSURANCE POLICY TO THE WIFE FOUND TO BE ERROR BECAUSE THE POLICY WAS HELD BY AN IRREVOCABLE TRUST, NEITHER PARTY WAS A TRUSTEE WITH THE POWER TO TRANSFER CONTROL OF THE TRUST ASSETS, AND, AS SUCH, THE TRUST ASSETS WERE UNAVAILABLE TO EITHER PARTY. 14
5. BENEFICIAL INTERESTS OF A SPOUSE IN IRREVOCABLE TRUSTS TO WHICH THE BENEFICIARY DID NOT CONTRIBUTE ANYTHING OF VALUE AND WERE ESTABLISHED AND FUNDED BY OTHER PERSONS WOULD BE CONSIDERED SEPARATE PROPERTY AND THUS WOULD GENERALLY NOT BE SUBJECT TO EQUITABLE DISTRIBUTION. SEE REED V. REED, 55 A.D.3D 1249 (APP. DIV. FOURTH DEPT., 2008) SUPREME COURT PROPERTY CONCLUDED THAT THE TRUST CREATED IN 1984 BY DEFENDANT S PATERNAL GRANDFATHER WAS THE SEPARATE PROPERTY OF DEFENDANT 15
6. IRREVOCABLE TRUSTS ESTABLISHED BY A SPOUSE BEFORE OR AFTER MARRIAGE, WHICH ARE FUNDED WITH SEPARATE PROPERTY SHOULD NOT GENERALLY BE SUBJECT TO EQUITABLE DISTRIBUTION. 7. QUERY WHETHER THE INCREASE IN VALUE OF A TRUST THAT QUALIFIES AS SEPARATE PROPERTY COULD NONETHELESS QUALITY AS MARITAL PROPERTY IF A SPOUSE COULD BE SAID TO BE PLAYING AN ACTIVE ROLE SUCH AS SERVING AS A CO-TRUSTEE OR INVESTMENT ADVISOR. 16
SEE REED V. REED, 55 A.D.3D 1249 (APP. DIV. FOURTH DEPT. 2008): (1) DEFENDANT HUSBAND CLAIMED THAT TRUST HE ALLEGEDLY ESTABLISHED WITH SEPARATE PROPERTY SHOULD NOT COUNT AS MARITAL PROPERTY BUT THE DEFENDANT FAILED TO TRACE THE SOURCE OF FUNDS WITH SUFFICIENT PARTICULARITY TO REBUT THE PRESUMPTION THAT THEY WERE MARITAL PROPERTY. 17
(2) PLAINTIFF WIFE ARGUED, IN THE ALTERNATIVE, THAT SHE WAS ENTITLED TO A PORTION OF THE APPRECIATION IN VALUE OF THE TRUST. THE LOWER COURT ACCEPTED THE ARGUMENT AND THE APPELLATE COURT DID NOT REJECT THE ARGUMENT AS A MATTER OF LAW. BUT THE APPELLATE COURT FOUND THAT THE LOWER COURT ERRED IN DETERMINING IN THE ALTERNATIVE THAT PLAINTIFF WAS ENTITLED TO A PORTION OF THE TRUST BASED ON THE CONTRIBUTIONS TO ITS APPRECIATION INASMUCH AS THE ALLEGED CONTRIBUTIONS OF PLAINTIFF TO THE APPRECIATION OF THAT TRUST CONSISTED SOLELY ON HER PRESENCE AT ANNUAL MEETINGS CONCERNING INVESTMENTS. 18
NEW YORK CASES ON INCLUSION OF SEPARATE PROPERTY APPRECIATION AS MARITAL PROPERTY. ACTIVE CONTRIBUTION: CARMAN V. CARMAN, 22 A.D. 3D 1004 (APP. DIV. THIRD DEPARTMENT, 2005) PLAINTIFF ENTITLED TO EQUITABLE DISTRIBUTION OF DEFENDANT S ANNUITY ACCOUNT S INCREASED VALUE WHERE DEFENDANT USED FINANCIAL PLANNING AND ACCOUNTING EXPERTISE TO MANAGE THE ACCOUNT. 19
PASSIVE CONTRIBUTION: SPENCER V. SPENCER, 230 A.D. 2D 645 (APP. DIV. FIRST DEPARTMENT, 1996) PLAINTIFF MUST SHARE PORTION OF SEPARATE INVESTMENT MANAGEMENT ACCOUNT WITH DEFENDANT BECAUSE DEFENDANT INDIRECTLY CONTRIBUTED TO APPRECIATION OF ASSET BY HANDLING HOUSEHOLD MATTERS, THEREBY PERMITTING PLAINTIFF TO HAVE FREEDOM TO DEVOTE ENERGY TO FINANCIAL ENDEAVORS. 20
II. TRUSTS AND CLAIMS FOR MAINTENANCE AND SUPPORT UNDER CURRENT NEW YORK LAW NEW YORK LAW REQUIRES THAT THE INCOME OF DIVORCING SPOUSES BE TAKEN INTO ACCOUNT FOR DETERMINING SPOUSAL MAINTENANCE AND CHILD SUPPORT. * A. INCOME FOR PURPOSES OF MAINTENANCE AND SUPPORT INCLUDES: 1. GROSS TOTAL INCOME REPORTABLE FOR FEDERAL INCOME TAX. 2. INVESTMENT INCOME NOT REPORTABLE FOR FEDERAL INCOME TAX PURPOSES REDUCED BY RELATED EXPENSES. * NY DOMESTIC RELATIONS LAW SECTION 240. 21
3. VARIOUS FORMS OF INCOME NOT NECESSARILY REPORTABLE FOR FEDERAL TAX PURPOSES OR DEFERRED INCOME. 4. THE COURT MAY ATTRIBUTE OR IMPUTE INCOME FROM OTHER RESOURCES, INCLUDING a. NON-INCOME PRODUCING ASSETS. b. ECONOMIC BENEFITS OF EMPLOYMENT. c. FRINGE BENEFITS RELATED TO EMPLOYMENT. d. MONEY, GOODS, OR SERVICES PROVIDED BY RELATIVES AND FRIENDS. 5. AMOUNTS IMPUTED FROM INCOME OR RESOURCES PREVIOUSLY AVAILABLE. 6. CERTAIN SELF-EMPLOYMENT DEDUCTIONS. 22
B. INCOME FROM TRUSTS OF WHICH A SPOUSE IS A BENEFICIARY WILL BE CONSIDERED IF THE INCOME IS REPORTABLE ON THE SPOUSE S FEDERAL INCOME TAX RETURN, EVEN IF THE TRUST WAS NOT ESTABLISHED BY THE SPOUSE OR WAS FUNDED BY THE SPOUSE WITH SEPARATE PROPERTY. SEE ALVARES-CORREA v. ALVARES-CORREA, 285 A.D.2D 123 (APP. DIV. FIRST DEPARTMENT, 2001) 23
SEE ALVARES-CORREA v. ALVARES-CORREA, 285 A.D.2D 123 (APP. DIV. FIRST DEPARTMENT, 2001) DEFENDANTS GRANDMOTHER ESTABLISHED TRUSTS IN THE BVI IN THE MID-1980s. DEFENDANT WAS A VESTED BENEFICIARY OF FOUR TRUSTS VALUED AT $37 MILLION AND HAD SOLE POWER OF APPOINTMENT IN THREE OF THEM. TRUSTS WERE NOT EVALUATED FOR PURPOSES OF PROPERTY DIVISION BUT TO DETERMINE WHETHER HE WOULD BE ABLE TO AFFORD MAINTENANCE AND CHILD SUPPORT. EVIDENCE CLEARLY SHOWED THAT THESE ASSETS WERE AVAILABLE TO HUSBAND AS A SUPPLEMENT TO HIS OTHER AVAILABLE ASSETS AND ENABLED HIM TO SATISFY HIS CHILD SUPPORT AND MAINTENANCE OBLIGATIONS. 24
C. INCOME FROM A DISCRETIONARY TRUST CAN BE IMPUTED TO A SPOUSE IF THERE HAS BEEN A PATTERN OR PRACTICE OF DISTRIBUTING INCOME TO THE BENEFICIARY. 25
D. FUTURE CONTINGENT INTERESTS IN TRUSTS SHOULD NOT BE CONSIDERED IN SETTING MAINTENANCE OR CHILD SUPPORT. SEE GOLD v. GOLD, 96 MISC. 2d 481 (SUPREME CT. N.Y. CTY. 1978) PLAINTIFF S INTEREST AS A CONTINGENT REMAINDERMAN OF TRUSTS FOR HER CHILDREN HELD TO SPECULATIVE TO BE CONSIDERED IN SETTING CHILD SUPPORT OBLIGATIONS, ESPECIALLY AS THEY CONFERRED NO PRESENT BENEFIT. 26
E. THE DETERMINATION OF INCOME ATTRIBUTABLE TO A SPOUSE DOES NOT NEED NECESSARILY TO CONSIDER THE RESTRICTIONS UNDER NEW YORK LAW ON ALIENATING INCOME OF A TRUST: NY EPTL SECTION 7-1.5(d) PROVIDES THAT [T]HE BENEFICIARY OF AN EXPRESS TRUST TO RECEIVE THE INCOME FROM PROPERTY AND APPLY IT TO THE USE OF OR PAY IT TO ANY PERSON IS NOT PRECLUDED... FROM TRANSFERRING OR ASSIGNING ANY PART OR ALL OF SUCH INCOME TO OR FOR THE BENEFIT OF PERSONS WHOM THE BENEFICIARY IS LEGALLY OBLIGATED TO SUPPORT. 27
III. ENFORCEMENT OF DIVORCE-RELATED JUDGMENTS AGAINST TRUSTS UNDER CURRENT NEW YORK LAW PHILLIPS NIZER LLP A. TRUSTS ESTABLISHED BY A DEFENDANT SPOUSE WITH RETAINED ECONOMIC RIGHTS. 1. EPTL SECTION 7-3.1(a): A DISPOSITION IN TRUST FOR THE USE OF THE CREATOR IS VOID AS AGAINST THE EXISTING OR SUBSEQUENT CREDITORS OF THE CREATOR. 28
1.EXCEPTIONS: a) CERTAIN TAX-PREFERRED RETIREMENT SAVINGS PLANS b) TRUST WHERE THE ONLY INTEREST OF SETTLOR IS ABILITY TO RECEIVE DISTRIBUTIONS TO PAY INCOME TAXES ARISING FROM TAX STATUS OF TRUST AS GRANTOR TRUST AS PROVIDED IN EPTL SECTION 7-1.11. 29
B. TRUSTS ESTABLISHED BY THIRD PARTIES FOR BENEFIT OF DEFENDANT SPOUSE 1. ACCORDING TO CPLR SECTION 5205(c), GENERALLY... ALL PROPERTY WHILE HELD IN TRUST FOR A JUDGMENT DEBTOR, WHERE THE TRUST HAS BEEN CREATED BY, OR THE FUND SO HELD IN TRUST HAS PROCEEDED FROM, A PERSON OTHER THAN THE JUDGMENT DEBTOR, IS EXEMPT FROM APPLICATION TO THE SATISFACTION OF A MONEY JUDGMENT. 30
EXCEPTIONS: a) RIGHTS OBTAINED UNDER A QUALIFIED DOMESTIC RELATIONS ORDER GIVING A FORMER SPOUSE RIGHTS IN THE OTHER SPOUSE S QUALIFIED RETIREMENT PLANS. b) ADDITIONS TO A TRUST MADE AFTER THE DATE THAT IS 90 DAYS BEFORE THE INTERPOSITION OF THE CLAIM ON WHICH THE JUDGMENT WAS ENTERED. c) ADDITIONS TO A TRUST DEEMED TO BE FRAUDULENT CONVEYANCES UNDER ARTICLE 10 OF NEW YORK S DEBTOR AND CREDITOR LAW 31
2. INCOME GENERALLY: PHILLIPS NIZER LLP ACCORDING TO CPLR SECTION 5205(d), 90% OF THE INCOME OR OTHER PAYMENTS FROM A TRUST WHOSE PRINCIPAL IS EXEMPT FROM ENFORCEMENT OF MONEY JUDGMENTS IS ALSO EXEMPT FROM SUCH ENFORCEMENT EXCEPT SUCH PART AS A COURT DETERMINES TO BE UNNECESSARY FOR THE REASONABLE REQUIREMENTS OF THE JUDGMENT DEBTOR AND THE DEPENDANTS OF THE JUDGMENT DEBTOR. 32
3. NOTE SPECIAL PROVISIONS FOR ORDERS OF SUPPORT UNDER NY CPLR SECTION 5241: a) ORDER OF SUPPORT INCLUDES ANY JUDGMENT OR DECREE IN A MATRIMONIAL ACTION OR FAMILY COURT PROCEEDING THAT DIRECTS THE PAYMENT OF ALIMONY MAINTENANCE, SUPPORT OR CHILD SUPPORT. b) WHERE A DEBTOR IS IN DEFAULT (FAILURE TO TIMELY MAKE THREE PAYMENTS OR ARREARS GREATER THAN THE AMOUNT DUE IN ONE MONTH) AND RECEIVES INCOME, AN EXECUTION FOR DEDUCTIONS SUBJECT TO CERTAIN LIMITS (GENERALLY 50% OR 60%) MAY BE SERVED UPON AN EMPLOYER AND ALSO ON AN INCOME PAYOR AFTER NOTICE TO THE DEBTOR. 33
c) A LEVY FOR SUPPORT TAKES PRIORITY OVER OTHER ASSIGNMENTS, LEVIES OR PROCESSES. THESE PROVISIONS SEEM ONLY TO APPLY TO INCOME AND NOT TO PRINCIPAL 34
IV. PROPOSALS TO MODIFY NEW YORK LAW A. THE UNIFORM TRUST CODE 1. SECTION 501: AUTHORIZES A COURT TO REACH A BENEFICIARY S INTEREST FOR PURPOSE OF ATTACHING PRESENT OR FUTURE DISTRIBUTIONS TO OR FOR THE BENEFIT OF THE BENEFICIARY WHEN THE TRUST IS NOT SUBJECT TO A SPENDTHRIFT PROVISION 2. SECTION 502: TO BE VALID, A SPENDTHRIFT PROVISION MUST RESTRAIN VOLUNTARY AND INVOLUNTARY TRANSFERS. A SIMPLE PROVISION TO THE EFFECT THAT A BENEFICIARY S INTEREST IS HELD SUBJECT TO A SPENDTHRIFT TRUST IS SUFFICIENT TO AFFORD 35
SPENDTHRIFT PROTECTION TO A BENEFICIARY. NOTE THAT, UNDER THE UTC, A BENEFICIARY MAY NOT TRANSFER AN INTEREST NOR MAY A CREDITOR REACH THE INTEREST OR DISTRIBUTION BY THE TRUSTEE BEFORE ITS RECEIPT BY THE BENEFICIARY IN THE CASE OF A SPENDTHRIFT TRUST. 3. SECTION 503: EXCEPTIONS TO SPENDTHRIFT PROVISION: A SPENDTHRIFT PROVISION IS UNENFORCEABLE AGAINST A BENEFICIARY S CHILD, SPOUSE, OR FORMER SPOUSE WHO HAS A JUDGMENT OR COURT ORDER AGAINST THE BENEFICIARY FOR SUPPORT OR MAINTENANCE. NOTE THAT SUCH A CLAIMANT MAY ONLY OBTAIN FROM A COURT AN ORDER ATTACHING PRESENT OR FUTURE DISTRIBUTIONS TO OR FOR THE BENEFIT OF THE BENEFICIARY. 36
4. SECTION 504: A CREDITOR OF A BENEFICIARY MAY NOT COMPEL A DISTRIBUTION THAT IS SUBJECT TO THE TRUSTEE S DISCRETION, EVEN IF THE DISCRETION IS EXPRESSED IN THE FORM OF A STANDARD OR THE TRUSTEE HAS ABUSED THE DISCRETION TO THE EXTENT A TRUSTEE HAS NOT COMPLIED WITH A STANDARD OR ABUSED THE TRUSTEE S DISCRETION. HOWEVER, A COURT MAY ORDER A TRUSTEE TO MAKE A DISTRIBUTION FOR THE SUPPORT AND MAINTENANCE OF THE BENEFICIARY S CHILD, SPOUSE OR FORMER SPOUSE CONSISTENT WITH THE STANDARD OR PROPER EXERCISE OF DISCRETION. 37
5. SECTION 505: IN THE CASE OF A TRUST WHERE THE DEFENDANT IS THE SETTLOR, ALL ASSETS OF A REVOCABLE TRUST ARE REACHABLE BY THE SETTLOR S CREDITORS AND, IN THE CASE OF AN IRREVOCABLE TRUST, THE CREDITOR OR ASSIGNEE CAN REACH THE MAXIMUM AMOUNT THAT CAN BE DISTRIBUTED TO OR FOR THE SETTLOR S BENEFIT. 38
B. THE NEW YORK TRUST CODE (PROPOSED) 1. SECTION 7-A-5.1: A BENEFICIARY S RIGHT TO INCOME OF A TRUST MAY NOT BE TRANSFERRED BY ASSIGNMENT OR OTHERWISE UNLESS SUCH A POWER IS CONFERRED BY THE TRUST INSTRUMENT, SUBJECT TO THE EXCEPTION UNDER CURRENT NEW YORK LAW FOR GIFTS TO CERTAIN RELATIVES OF ANNUAL INCOME IN EXPRESS OF $10,000 AND FOR TRANSFERS TO PERSONS THE BENEFICIARY IS LEGALLY OBLIGATED TO SUPPORT. 2. SECTION 7-A-5.2: FOR TRUSTS CREATED AFTER THE EFFECTIVE DATE OF THE NEW YORK TRUST CODE, THE RIGHT OF A BENEFICIARY TO RECEIVE PRINCIPAL MAY NOT BE TRANSFERRED BY ASSIGNMENT OR OTHERWISE UNLESS SUCH A POWER IS CONFERRED UNDER THE TRUST INSTRUMENT. 39
3. SECTION 7-A-5.3: AN ORDER OF SUPPORT DIRECTING THE PAYMENT OF ALIMONY, MAINTENANCE, SUPPORT OR CHILD SUPPORT CAN BE ENFORCED AGAINST (a) THE INCOME INTEREST OF A BENEFICIARY THAT IS SUBJECT TO SPENDTHRIFT PROTECTION UNDER NY CPLR SECTION 5241 AND (b) AGAINST A PRINCIPAL INTEREST THAT IS SUBJECT TO A SPENDTHRIFT PROVISION. 4. SECTION 7-A-5.4: A BENEFICIARY MAY NOT TRANSFER HIS OR HER INTEREST IN A DISCRETIONARY TRUST BUT A BENEFICIARY S DISCRETIONARY INTEREST IN A TRUST IS SUBJECT TO THE CLAIMS OF CREDITORS TO THE EXTENT PROVIDED FOR WITH REGARD TO REVOCABLE TRUSTS AND ARTICLE 52 OF THE NY CPLR. 40