PHILLIPS NIZER LLP

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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

600 Old Country Road • Garden City NY 11530 516.229.9400 Phone • 516.228.9612 Fax

Court Plaza North • 25 Main Street • Hackensack NJ 07601 201.487.3700 Phone • 201.646.1764 Fax

Resourceful Representation

666 Fifth Avenue • New York NY 10103 212.977.9700 Phone • 212.262.5152 Fax

www.phillipsnizer.com

PHILLIPS NIZER LLP

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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.”

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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.

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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.”

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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.

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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.”

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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…”

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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.

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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.”

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(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.”

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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.

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“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.

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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.

II. TRUSTS AND CLAIMS FOR MAINTENANCE AND

SUPPORT UNDER CURRENT NEW YORK LAW

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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.

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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)

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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.”

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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.

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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.”

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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.”

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III. ENFORCEMENT OF DIVORCE-RELATED

JUDGMENTS AGAINST TRUSTS UNDER

CURRENT NEW YORK LAW

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.”

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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.

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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.”

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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

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2. INCOME GENERALLY:

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.”

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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.

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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

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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

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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.

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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.

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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.

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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.

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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.