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Broadway National Bank v. Adams

Massachusetts Supreme Judicial Court
133 Mass. 170 (1882) (1882)
ELI5:

Rule of Law:

A testator may create a trust that provides a life income to a beneficiary and include a valid provision restricting the income from being alienated by the beneficiary or attached by the beneficiary's creditors before it is paid.


Facts:

  • A testator's will established a trust of $75,000 for the benefit of his brother, Charles W. Adams.
  • The will directed the trustees to pay the net income of the fund to Charles W. Adams for the duration of his natural life.
  • The will explicitly stated that payments were to be made "free from the interference or control of his creditors."
  • The will further expressed the testator's intent that "the use of said income shall not be anticipated by assignment."
  • The plaintiff, a creditor of Charles W. Adams, was owed a debt by him.
  • The plaintiff sought to have the income from the trust fund applied to satisfy the debt owed by Charles W. Adams.

Procedural Posture:

  • The plaintiff, a creditor, filed a bill in equity in a Massachusetts court of first instance.
  • The plaintiff's suit sought to compel the trustee of a fund, established for the defendant Charles W. Adams, to apply the trust's income to the payment of Adams's debt.
  • The case was argued before the Supreme Judicial Court of Massachusetts, the state's highest court.

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Issue:

Is a provision in a will creating a trust legally valid if it restricts the beneficiary's ability to assign the income and protects that income from the beneficiary's creditors prior to payment?


Opinions:

Majority - Morton, C. J.

Yes. A provision in a will creating a trust that restricts the beneficiary's ability to assign the income and protects it from the beneficiary's creditors is legally valid. The testator's intention was clear: to provide his brother with an income that could not be alienated in advance or seized by creditors. This intention should be carried out unless it is contrary to public policy. The common law rule against restraints on alienation does not apply to equitable life estates in a trust, as it does to absolute grants of property. Public policy is not violated because creditors can, through due diligence, ascertain the limited nature of the beneficiary's interest by examining public records like the will. The founder of a trust possesses the absolute right to dispose of his property with such restrictions, and creditors cannot enlarge the gift beyond what the founder intended to give.



Analysis:

This decision formally establishes the validity of spendthrift trusts in Massachusetts, a landmark development in American trust law. By departing from the prevailing English common law rule that found such restraints on alienation void, the court prioritized the donor's intent and freedom of disposition. This ruling created a powerful estate planning tool, enabling settlors to provide for beneficiaries who may be financially improvident by protecting the trust assets from the beneficiaries' creditors. The case has been highly influential, leading many other American jurisdictions to recognize and enforce spendthrift provisions.

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