As the previous post notes, a special rule applies to a support trust in which the settlor’s spouse is a beneficiary. In that case, the trustee shall consider the spouse’s other resources (i.e., assets outside of trust) before making a distribution. But what is a “support trust” and why does the classification matter?
The term “support trust” only appears in two statutes in the Tennessee Trust Code. Both of them were referred to in the previous post:
The traditional common law distinction between a discretionary trust and a support trust and the dual judicial review standards related to this distinction shall be maintained.
If the settlor’s spouse is named as a beneficiary, the settlor’s spouse is still living and the trust is classified as a support trust, then the trustee shall consider the resources of the settlor’s spouse, including the settlor’s obligation of support, prior to making a distribution.
One might expect the definition section of the Tennessee Trust Code, T.C.A. § 35-15-103, to explain the term. This, however, is not the case. Instead, the definition is buried in the Section Comments of T.C.A. § 35-15-504:
This section addresses the effect of a trust (a “discretionary trust”) containing a distribution interest that is a discretionary interest. Unlike the Uniform Trust Code and Restatement (Third) of Trusts, the Tennessee Uniform Trust Code maintains the traditional common law distinction between a trust having a discretionary interest (a “discretionary trust”) and a trust having a support interest (a “support trust”).
Thus, a support trust is a trust having a “support interest.”
The term “support interest” is defined in the Tennessee Trust Code itself. It means:
a distribution interest that is not a mandatory interest but still contains mandatory language such as “shall make distributions” and is coupled with a standard capable of judicial interpretation.
For example, the following language would create a support interest:
The trustee shall make distributions for health, education, maintenance, and support.
However, if a trust contains distribution language indicating the existence of a support interest and other interests (i.e., a discretionary interest or a mandatory interest), the trust shall be a support interest only to the extent of the support distribution language. See T.C.A. § 35-15-103(a)(10)(C)(ii).
Certain benefits flow from the classification of a trust as a support trust. These include:
- A beneficiary of a support trust has an enforceable right to a distribution pursuant to a court’s review [T.C.A. § 35-15-814(c)(1)];
- The rights of a beneficiary in support trust do not rise to the level of a property interest and are therefore protected from creditors, even absent a spendthrift provision [T.C.A. § 35-15-506(a)(1); Comments to T.C.A. §§ 35-15-101 and 35-15-501];
- Creditors cannot reach property subject to a support trust until it is distributed to the beneficiary [T.C.A. § 35-15-506(a)(2)];
- Even after a distribution is made from a support trust to a beneficiary, a creditor cannot reach it except to the extent that the distribution exceeds the amount necessary for the beneficiary’s health, education, maintenance and support [T.C.A. § 35-15-506(a)(3)]; and
- No creditor can force any distribution from the trust [Comments to T.C.A. § 35-15-502].