Citation. State Street Bank & Trust Co. v. Reiser, 7 Mass. App. Ct. 633, 389 N.E.2d 768, 1979)
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Brief Fact Summary.
Wilfred A. Dunnebrier created an intervivos trust and reserved the power to amend or revoke the trust, and the right during his lifetime to direct the disposition of principal and income. Dunnebrier subsequently applied for and received a loan from State Street Bank for $75,000. At Dunnebrier’s death, the loan had not been paid and State Street Bank sought to reach the assets of the trust.
Synopsis of Rule of Law.
Creditors may reach a deceased debtor’s trust income if he created a trust during his lifetime and reserved the right to amend and revoke, or to direct disposition of principal and income. The creditors may recover an amount that is not satisfied by the estate, and not greater than that which the settlor could have used for his own benefit during his lifetime.
Dunnebrier created an intervivos trust and reserved the power to amend and revoke, and to direct the disposition of principal and income during his lifetime. He conveyed the capital stock of five closely held corporations. After the execution of the trust, he executed a will in which he left his residuary estate to the trust. A little over a year later Dunnebrier applied for and received a business loan from State Street Bank for $75,000. At his death, he owed State Street Bank & Trust $75,000. The bank sought to reach the assets of the trust.
Whether a creditor may reach the assets of a deceased settlor’s trust if he created a trust during his lifetime and reserved the right to amend and revoke, or direct payments to himself, even though the trust has living beneficiaries.
Yes. A creditor may reach the property of a settlro’s trust if he reserved the rights to amend and revoke, or direct payment to himself during his lifetime. It violates public policy for an individual to have an estate to live on but not an estate to pay his debts with. The creditors may reach the assets of the trust to the extent that the debt is not satisfied by the estate. The creditors may not reach any amount that the settlor could not have used for his personal benefit during his lifetime.
Where there is evidence that a settlor creates a trust that is not solely intended for a purpose other than the settlor’s own gain, the court will not allow that trust to be used to avoid paying a debt.