Marquette University Law School
By J. Gordon Hylton
October 31st, 2010
The U.S. Supreme Court’s Most Important Decision Affecting the Law of Trusts & Estates Was Decided a Very Long Time Ago
The United States Supreme Court rarely addresses issues directly involving the law of wills and trusts. Like most legal questions involving the transfer of private property between private citizens, such matters have usually been left to state courts. Federal courts have even adopted special rules, like the so-called “probate exception to federal jurisdiction,” to keep wills-and trusts-related matters out of federal courts.
Occasionally, a trusts and estates case reaches the Supreme Court because it involves an issue of an unconstitutionally discriminatory category or a question of federal preemption. However, most decisions of this sort have had very little practical impact on the operation of the rules that govern intergenerational wealth transfers.
To find a Supreme Court decision that significantly altered the course of the development of the law of trusts and estates, one arguably has to go back to 1875 and the case of Nichols v. Eaton, 91 U.S. 716 (1875).
That case recognized the legitimacy of the spendthrift trust and paved the way for its widespread acceptance as a legal means of protecting one’s beneficiaries from the meritorious claims of their creditors.
Under a spendthrift trust, the creator of the trust, the settlor, restricts the ability of the beneficiary of the trust to alienate his or her interest, either voluntarily or involuntarily. This means that an impatient beneficiary cannot transfer his or her interest in the trust, which was likely to amount to a source of annual income, in exchange for a lump sum payment. More importantly, it keeps the beneficiary’s creditors from attaching the income stream from the trust, as they could with wages under typical garnishment laws.
