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Spendthrift Trust Law Not Unconstitutional

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In  Zlatkiss v. All-America (5th DCA 2013), the Florida court was faced with the somewhat novel, although unsuccessful, argument that spendthrift provisions of a Florida trust are unconstitutional.

What Is A Spendthrift Trust Under Florida Law?

A spendthrift trust is a feature of a trust that protects the trust from the claims of creditors of the beneficiary.  Spendthrift trust provisions will typically be included in trusts for the benefit of the children and grandchildren of the settlor of the trust.

Florida has a long history of recognizing spendthrift trust provisions.

Is The Florida Spendthrift Trust Law Unconstitutional?

No. The creditor protections of a spendthrift trust have been recognized as legally valid at common law, before the adoption of the spendthrift provisions of the Florida Trust Code.  Therefore, the argument that the Florida Trust code abolished common law rights, rendering the spendthrift trust law unconstitutional, is the exact opposite of what the Florida Trust Code actually does, which is recognize the common law right to create a spendthrift trust.

The Analysis In Zlatkiss v. All-America

The beneficiary of the trust in question, Mr. Steinmetz, signed a loan guarantee in favor of All America.  The loan went into default, All America obtained a judgment against Mr. Steinmetz, and then attempted to collect on the judgment against Mr. Steinmetz.  Mr. Steinmetz was apparently the beneficiary of a trust being administered by Wells Fargo.  All America attempted to collect on the judgment from the trust.  Wells Fargo refused to pay the judgment, relying on the trust’s spendthrift language.

The Appellate Court explained the history and importance of spendthrift trust provisions.

Spendthrift trusts are ‘“created with [the intention] of providing a fund for the maintenance of another, and at the same time securing it against his own improvidence or incapacity for self-protection.”’ Miller v. Kresser, 34 So. 3d 172, 175 (Fla. 4th DCA 2010) (quoting Croom v. Ocala Plumbing & Elec. Co., 57 So. 243, 244 (Fla. 1911)). A valid spendthrift provision prevents a beneficiary from transferring his or her interest in the trust as well as prevents creditors or assignees of the beneficiary from reaching any of the trust funds until they are dispersed to the beneficiary. Miller, 34 So. 3d at 175 (citing § 736.0502(3), Fla. Stat. (2009)). Spendthrift provisions have long been recognized as valid in Florida and sections 736.0501-.0507 additionally provide for the enforcement of spendthrift trusts. Miller, 34 So. 3d at 175; Waterbury v. Munn, 32 So. 2d 603 (Fla. 1947).

Plaintiffs’ constitutional challenge to the Florida Trust Code’s provisions authorizing spendthrift trusts was based on the claimed lack of access to the court system to redress its harm, the inability to collect on the loan guarantee.  This inability to collect, argued the Plaintiff, made the spendthrift trust law unconstitutional.

The Court rejected this argument.

The glaring flaw in Plaintiffs’ argument is that the creditor-protection provisions of a properly drafted spendthrift trust were recognized as legally valid (and effective to protect trust assets against judgment or other creditors) at common law, long before the adoption of sections 736.0501-.0507. As such, these statutes cannot be considered under Kluger as a legislative act abolishing a common law right, but rather, recognizing one. See, e.g., Munn, 159 So. 2d at 605 (citing Croom, 57 So. at 244).

Additionally, as noted by the trial judge, Plaintiffs are confusing their right to bring a legal action with their means of collecting a judgment. Article I, section 21 guarantees access to courts, i.e., “the avoidance of significant impediments to the filing of nonfrivolous legal claims[.]” Spencer v. Fla. Dep’t. of Corr., 823 So. 2d 752, 756 n.6 (Fla. 2002). It does not guarantee the ability to enforce a judgment.

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