Also known as:prodigals · prodigus · prodigi · spendthrift
Written by attorneys — see sources below.
in civil law
A person whose affairs are managed by a curator because of wasteful spending or other bad conduct. In Roman law the agnatic family of a prodigal could prohibit the person from engaging in certain legal transactions and place the estate under a curator.
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How its tested
Common Examples
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Spendthrift Restraint on Prodigal Beneficiary
Patrick Phan created an irrevocable trust for his son Parker Phillips, a known prodigal who had squandered prior inheritances on speculative ventures. The trust instrument stated that Parker's interest shall not be anticipated or assigned by him or reached by his creditors. When a judgment creditor sought to attach future distributions, the court upheld the clause as a valid spendthrift provision because it restrained both voluntary and involuntary transfers.
Creditor Attachment Absent Spendthrift Clause
Portia Price established a trust for her daughter Paula Pierce, a prodigal who had run up large gambling debts. The instrument contained no spendthrift language. After a creditor obtained a judgment, the court authorized attachment of present and future distributions to Paula because her interest was not protected by any restraint on voluntary or involuntary transfer.
Patricia Patel funded a trust for her nephew Parker Phillips, a prodigal with a history of poor financial decisions. The trust stated that the beneficiary's interest shall not be assigned or subject to creditors' claims. A court held the provision valid because it restrained both voluntary and involuntary transfers even though it never used the phrase spendthrift trust.
Similar Import Language Creates Restraint
Paige Porter created a trust for her brother Patrick Phan, a prodigal who had previously assigned interests to lenders. The instrument provided that the beneficiary's interest is held subject to a spendthrift trust. The court enforced the clause against an assignee because words of similar import suffice to restrain both voluntary and involuntary transfers.
Discretionary Distributions Immune from Creditors
Paragon Construction funded a discretionary trust for its founder Paula Pierce, a prodigal whose spending threatened the family business. The trustee refused a creditor's demand for distributions even though the trust used an ascertainable support standard. The court denied compulsion because a creditor may not force distributions subject to the trustee's discretion whether or not a spendthrift provision exists.
Final Judgment Bars Legislative Reopening
Pacific Bank obtained a final judgment against a prodigal borrower whose trust interest had been reached by creditors. Congress later passed a statute directing courts to reopen such judgments. The court refused to reopen the case, holding that separation of powers prevents legislative interference with final judicial determinations.
Plaut v. Spendthrift Farm, Inc.514 U.S. 211, 228 (1995)
In 1987 petitioners filed a civil action in the United States District Court for the Eastern District of Kentucky against respondents. The complaint alleged that respondents had committed fraud and deceit in the sale of stock in 1983 and 1984 in violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
The District Court dismissed the action as time barred under the then-applicable Kentucky statute of limitations. While petitioners' appeal was pending in the Court of Appeals for the Sixth Circuit, the Supreme Court decided Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson on June 20, 1991. The next day the Court applied that decision to dismiss another pending appeal.
The Sixth Circuit remanded petitioners' case to the District Court for further proceedings in light of Lampf. On August 13, 1991, the District Court dismissed the action with prejudice under the Lampf statute of limitations. Petitioners filed no appeal, and the judgment became final thirty days later on December 18, 1991.
On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991. Section 476 of that Act added section 27A to the Securities Exchange Act of 1934. Subsection (b) provides that any private civil action under section 10(b) commenced on or before June 19, 1991, which was dismissed as time barred after that date and which would have been timely under the limitation period provided by the laws applicable in the jurisdiction as such laws existed on June 19, 1991, shall be reinstated on motion by the plaintiff not later than sixty days after December 19, 1991.
Petitioners promptly filed a motion under section 27A(b) to reinstate their action. The District Court denied the motion. The Court of Appeals for the Sixth Circuit reversed, and the Supreme Court granted certiorari.
What makes a spendthrift provision valid under the Uniform Trust Code?
A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary's interest. Words of similar import are sufficient to create the restraint.
May a creditor reach a beneficiary's interest when no spendthrift provision exists?
Yes. To the extent a beneficiary's interest is not subject to a spendthrift provision, a court may authorize a creditor to reach the interest by attachment of present or future distributions or by other appropriate means.
Does a spendthrift provision protect against all creditors?
No. A spendthrift provision does not prevent a state or the United States from reaching the interest when a statute or federal law so provides. Certain support creditors may also obtain relief under statutory exceptions.
Can a court compel distributions from a discretionary trust to satisfy a creditor?
Generally no. Whether or not the trust contains a spendthrift provision, a creditor may not compel a distribution subject to the trustee's discretion even if the discretion is expressed as a standard or the trustee has abused the discretion, subject to limited exceptions such as support claims.
What happens to distributions once the trustee actually pays them to the beneficiary?
Once a distribution reaches the beneficiary, it is no longer protected by a spendthrift provision and becomes subject to ordinary creditor remedies.
514 U.S. 549 (1995)
…v. Valeo , 424 U. S. 1 (1976); INS v. Chadha , 462 U. S. 919 (1983); Bowsher v. Synar , 478 U. S. 714 (1986); Plaut v. Spendthrift Farm, Inc., ante , p. 211. These standards are by now well accepted. Judicial review is also established beyond question, Marbury v. Madison , 1 Cranch 137 (1803), and though we may differ…