Wednesday, September 7, 2016
Trust Can Be Tapped for Child Support Despite ‘Shutdown’ Clause—Court
By a MetNews Staff Writer
A court has the authority to order payment of child support from the obligor’s share of a trust, regardless of a clause barring the trustee from making distributions that would become subject to claims by the beneficiary’s creditors, the Fourth District Court of Appeal ruled yesterday.
Div. Three reversed Orange Superior Court Judge Jamoa Moberly’s ruling that the court could not order the trustee of the Borgert Vedder and Nellie A. Verder Revocable Trust to pay child support to David Pratt. Pratt and Cynthia Vedder had six children between 1990 and 2003 and divorced in 2009.
Cynthia Vedder is the granddaughter of Borgert and Nellie Vedder. Borgert Vedder, an inventor, died in 1989 and Nellie Vedder in 2007.
Cynthia Vedder’s father, Robert Vedder, predeceased his mother. Under the terms of the trust, Cynthia Vedder was to receive a one-sixth share of the assets.
More specifically, the trustee was to pay each beneficiary a share of trust income at age 25, with further distributions of income thereafter and distributions of principal at ages 50, 55, and 60, with the remainder of the beneficiary’s share paid at age 65. The trustee was also permitted to make discretionary distributions of principal at any time.
The trust contained a standard spendthrift clause, along with a “shutdown” clause, which read:
“All provisions for the payment of periodic installments of principal to any beneficiary shall become inoperative during any period when and to the extent that, if paid, they would become subject to the enforceable claims of creditors of the beneficiary.”
The trust also provided that if a grandchild‑beneficiary died before age 65, the balance of his or her share of the trust would be distributed directly to the executor or administrator of his or her probate estate. Cynthia Vedder is now 48, and her share of the trust assets was worth more than $200,000 at the end of 2013.
Orders requiring Vedder to reimburse her ex-husband for medical and child care expenses, and for child support, were made in 2010 and 2012, with the amount due exceeding $93,000 by April 2014.
In January of last year, Pratt petitioned for an order requiring the trustee to pay him the amounts past due for the support and care of the children.
The trustee did not dispute the factual allegations of the petition. Moberly denied relief, solely on the basis of the shutdown clause.
Justice Richard Fybel, however, writing for the Court of Appeal, said the trial judge could have granted the petition, as to the child support and expenses, under Probate Code §15305.
The relevant part of the statute permits the probate court to order a trustee to pay child support owed by a beneficiary out of the beneficiary’s share of trust principal and income, if the beneficiary has the right to compel such payments and the order would be “equitable and reasonable under the circumstances.”
The statute also allows the court to order support to be paid out of discretionary future payments, even if the beneficiary lacks the right to compel the trustee to make the payments. And by its terms, §15305 “applies to a support judgment notwithstanding any provision in the trust instrument.”
Fybel cited Ventura County Dept. of Child Support Services v. Brown (2004) 117 Cal.App.4th 144, which held that where a trustee has discretion to make or withhold payment, the trustee may not act with an intent to avoid child support. That the instrument in that case did not have a shutdown clause, the justice said, does not compel a different result.
“Probate Code section 15305 expresses this state’s policy that child support judgments may be enforced against the distribution of assets from a trust,” Fybel wrote, emphasizing the statutory command that the section apply regardless of “any” contrary provision in the instrument.
The case is Pratt v. Ferguson, G052385.
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