In a recent Florida case, the court determined that, even though father is a beneficiary of a special needs trust which contains a spendthrift provision, and he is only entitled to trust assets for supplemental income while maintaining eligibility for federal public assistance, Trust distributions for his benefit are subject to garnishment to satisfy a child support claim.
In Alexander v. Harris, Harris (Father) is a sole beneficiary of a special needs trust (Trust) established when he was minor through a product liability action. According to an order for enforcement of past due child support, Father was injured in a severe car accident, burned over 80% of his body and lost limbs. His mother brought a case against Ford Motor Company and Ken Marks Ford and received a settlement on behalf of Father.
Father, when he was a minor and through his guardian, funded a life time annuity through the Trust for the sole benefit of Father. Experts for the mother (Mother) seeking child support from Father determined that the Trust is a first party trust created pursuant to federal law. Under Florida law, a first party trust, even if the trust contains a spendthrift provision, is not protected from creditors.
A spendthrift provision provides that trust assets are not available for a beneficiary’s creditors. Further, the beneficiary can not assign or otherwise alienate the beneficiary’s interest. The provision is intended to protect a beneficiary from the beneficiary’s own improvidence.
The Trust receives $3,035.59 a month, Father’s expenses averages about $2,478 a month and, as of December, 2016, the Trust was valued at $142,000
Mother had a $91,000 child support claim.
The lower court determined that Father has no control over the Trust, no ability to compel the trustee to disburse funds and does not personally receive benefits because distributions are made directly to 3rd parties for his benefit. The lower court dismissed the first party trust argument, relied on the spendthrift provision, and ruled for Father.
Mother appealed and argued that, even if the Trust is not a first party trust, the spendthrift provision is unenforceable against a child support claim under Florida law. The appellate court cited Bacardi v. White and Berlinger v. Casselberry in finding that a spendthrift provision is unenforceable against a beneficiary’s child support claim. As Mother had exhausted all other methods to enforce a child support order, the court allowed a continuing writ of garnishment against the discretionary disbursements made by the trustee from the Trust.
Father argued that such a writ of garnishment will disqualify Father from public assistance under federal law. The court could find no legal basis for that argument and determined that Father should not be ineligible for public assistance if the assets are transferred for the benefit of Father’s child. The payments from the Trust, while not paid directly to Father, are for the benefit of Father (through the child support).
The court further confirmed Berlinger v. Casselberry in finding that “Florida has a public policy favoring spendthrift provisions in trusts and protecting a beneficiary’s trust income; however it gives way to Florida’s strong public policy favoring enforcement of alimony and support orders.”
ADVICE: This decision is not surprising because of the precedent of the cases cited above. What is surprising is that the lower court did not consider the first party trust argument and recognize Florida’s policy of not allowing first party trusts to avoid creditors. It appears to this author that the lower court judge weighed the equities in favor of the father, perhaps because of the severity of Father’s injuries.
This case further confirms that if your client is insistent about avoiding creditors, such as child support or alimony, Florida is not the state to create such a trust. Such trusts should be created in a state with state statutes that protect trusts from a beneficiary’s child support and alimony. Nevada is one of those states and a recent Nevada case confirms such result.
What is also interesting is that mother won on appeal on a pro se basis. Kudos to her for her perseverance!
Keep in mind Section 736.504 specifically states that a fully discretionary trust is protected from creditor’s claims, INCLUDING child support and alimony claims. Unfortunately, the Berlinger court found that such section did not overrule Bacardi and held that a discretionary trust did not protect the discretionary distributions from being garnished for an alimony claim. There is considerable discussion among attorneys as to whether Berlinger was correctly decided. Legislation is needed to clarify whether Bacardi was overruled in the current Florida statute. However, because of Florida’s strong public to protect alimony and child support, it is unlikely such legislation will occur. Berlinger and Alexander were decided in the Second DCA. Who knows how a case with the same facts will be decided in another district. This author does not believe that the result will be different.
WORD OF THE WEEK: Pro se is the act of representing yourself in a court proceeding. Some say individuals who do that has a “fool for a client” but in this case she did a great job!
GENEROSITY IS A KEY TO HAPPINESS…REACH OUT AND HELP SOMEONE TODAY! 😎