Broadway National Bank v. Adams

Supreme Judicial Court of Massachusetts · 1882 · Property

PropertyTruststrustsspendthrift trustrestraints on alienationcreditors' rightsequitable life estateincome interest

Facts

Adams's brother's will gave $75,000 to executors in trust to invest and to pay the net income to Adams semiannually during his life. The will directed that payments be made to Adams personally when convenient or otherwise on his written order or receipt, and in either case "free from the interference or control of his creditors," with the stated intention that the income should not be anticipated by assignment. After Adams's death, the income and principal were directed to go to his wife and children under stated conditions. The bank, as Adams's creditor, sought in equity to reach the trust income before it was paid to him.

Issue

May a creditor reach, by attachment or in equity, the future income of a trust created by a third person for a beneficiary when the instrument expressly forbids anticipation by assignment and interference or control by the beneficiary's creditors? More broadly, may the founder of such a trust give the beneficiary only a qualified right to receive income upon payment, rather than an absolute alienable interest in future income?

Rule

When a person other than the beneficiary, having full power to dispose of his property, creates a trust and clearly provides that the beneficiary's future income shall not be alienable by anticipation and shall not be subject to creditors before payment, the beneficiary takes only a qualified interest in that future income. In that circumstance, creditors cannot reach the income at law or in equity before it is paid to the beneficiary, so long as the restriction is not repugnant to the nature of the estate and does not violate public policy.

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In Boston, Nora Ellison’s will placed $400,000 with Harbor Crest Fiduciary as trustee, directing it to invest the fund and pay net income to her nephew, Liam Porter, every six months for life. The will states that Liam may not assign future payments and that no creditor may reach the income before it is actually paid to him. Liam later defaults on a loan, and the lender files an equity action seeking an order that the trustee pay the next distribution directly to the lender.

How should the court rule?

Explanation. The majority held that when someone other than the beneficiary, with full power to dispose of the property, creates a trust and clearly provides that future income is not alienable by anticipation and not subject to creditors before payment, the beneficiary takes only a qualified interest in that future income. Creditors therefore cannot reach the income at law or in equity before payment. The trustee should not be compelled to do what the instrument forbids.