Shelley v. Shelley

Oregon Supreme Court
354 P.2d 282, 223 Or. 328 (1960)

ELI5:

Rule of Law:

On grounds of public policy, a spendthrift provision in a trust is not effective against enforceable claims for a beneficiary's child support and a former spouse's alimony.

Facts:

Hugh T. Shelley created a testamentary trust, naming The United States National Bank of Portland as trustee.
The trust directed that after the death of Hugh's wife, all income was to be paid to their son, Grant R. Shelley, for life.
The trust included a spendthrift provision stating that a beneficiary's interest could not be alienated or assigned and would not be subject to their liabilities or the claims of creditors.
The trust also permitted the trustee, in its discretion, to invade the principal for the benefit of Grant's children in an emergency requiring unusual and extraordinary expenses for their support.
Grant Shelley divorced his first wife, Patricia C. Shelley, with whom he had two children; the divorce decree required him to pay child support.
Grant Shelley later divorced his second wife, Betty Shelley, with whom he also had two children; this decree required him to pay both alimony and child support.
Grant Shelley subsequently disappeared, failing to make the required support and alimony payments.

Procedural Posture:

Plaintiff Betty Shelley obtained an injunction in the circuit court for Multnomah County, restraining the trustee from disbursing trust assets.
Defendant Patricia Shelley initiated a garnishment proceeding against the trustee to enforce her child support claim from a prior divorce decree.
The trustee, The United States National Bank of Portland, filed a bill of interpleader in the circuit court, asking the court to determine the respective rights of all parties to the trust assets.
The circuit court (trial court) entered a decree subjecting both the trust's accrued income and future income to the alimony and child support claims of Betty Shelley and Patricia Shelley.
The trial court's decree further held that if the income was insufficient, the corpus of the trust could be invaded to satisfy the claims.
The trustee, The United States National Bank of Portland, appealed the trial court's decree to the Supreme Court of Oregon.

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a spendthrift provision in a trust, which restrains a beneficiary from alienating his interest and protects it from the claims of creditors, bar enforceable claims for alimony by a former wife and for support by the beneficiary's children?

Opinions:

Majority - O'Connell, J.

Yes, a spendthrift provision does not bar such claims. Public policy requires that a beneficiary's interest in a trust be subject to claims for child support and alimony, overriding the testator's intent to restrain alienation. The court reasoned that the privilege of disposing of property is not absolute and can be limited by public policy considerations, as established by judge-made rules like the rule against perpetuities. It would be contrary to public policy to allow a beneficiary to enjoy the trust's benefits while his children become a charge on the state. Similarly, the legal and societal obligation of a husband to support his family, which extends to alimony for a former wife, is a superior duty that outweighs the restrictions of a spendthrift clause. However, these claims can only reach the trust's income, as the beneficiary has a right to it. The corpus is not reachable for alimony claims because the beneficiary's access to it is purely discretionary, but the corpus may be invaded for child support if the trustee determines that the father's desertion constitutes an emergency under the trust's terms.

Analysis:

This decision firmly establishes a public policy exception to the enforceability of spendthrift trusts in Oregon. It places family support obligations (alimony and child support) in a special, preferred category, superior to the claims of ordinary creditors and the testator's expressed intent. By differentiating between the beneficiary's right to income and his lack of a right to a discretionary corpus, the court provides a nuanced framework for how family support claims can attach to different types of trust assets. This precedent significantly impacts estate planning and trust administration, requiring trustees to consider valid family support claims despite the presence of a spendthrift clause.

Gunnerbot

AI-powered case assistant

Loaded: Shelley v. Shelley (1960)

Try: "What was the holding?" or "Explain the dissent"