This is a scenario I ran into somewhere on the Internet and I decided to share it for your consideration. I want to hear the kind of rule you’d make if it were up to you to decide what’s fair in this situation, with your reasons. You can drop the comments below.
I assume you know about trusts. There’s a kind of trust known as spendthrift trust. You can get an overview of them here. Basically, it’s a trust set up in such a way that the beneficiary receives payouts from the trust’s earnings or interest without being able to access the principal in any way because under the definition of the trust, it does not belong to her. In fact, in most cases, the beneficiary is only entitled to having whatever needs the payout covers taken care of, while the main trust has someone else entirely listed as it’s final inheritor. So, I can for instance, set up a trust that pays $100,000/year to my friend who is terrible at finances, thereby helping him take care of his needs, but the principal amount will go to my children once the term of the trust terminates, or if my friend dies. So while he’s getting the money annually, its not his money. Creditors can’t come for the money, the courts can’t, no one can, because it’s not his money (I feel like I’m repeating way too much, but i have to emphasize that).
The case of fairness comes in however when it becomes impossible to force proper retribution for an offense committed by the beneficiary (let’s call her Mary). Say, Mary goes out one day, gets way too drunk and drives right into Martha who because of the injuries becomes paralyzed and loses her daily livelihood. On top of that, she runs up medical bills, and a host of other expenses, including the cost of suing Mary for damages. However, Mary has no assets, no income and no way to pay the obligations to Martha. The only thing she has, is the money from the trust, which while it keeps her living in extreme comfort, is not available, not even a dollar to pay Martha. The reasoning is that, that money is essentially the property of whoever set up the trust, and while they are choosing to spend it on Mary, the courts or anyone else cannot force them to use it to settle Mary’s obligations to Martha. (This is a situation that comes up quite a few times in real life).
The question then becomes, should the rules of the trust be honored in this situation? Or should it be challenged or changed to force the money mary is getting to be used to pay her debts given that Martha is going to suffer for a long time for Mary’s negligence? By extension, some rules will have to be defined where certain types of creditors can come after spendthrift trust benefits, while other’s cannot. How is that bar determined?
What is the fair thing to do here? And why?