Disadvantages of a SPOA trust

On Behalf of | Mar 9, 2016 | Trusts

Nevada residents who are thinking about establishing a trust may want to avoid setting up a special power of appointment trust. There are several disadvantages of this type of trust that need to be pointed out.

SPOA trusts have the trustee having the power to distribute money to anyone other than them. This means they can distribute money to anyone who is not their own creditor or their own estate. The distributions will not necessarily go to the people for whom the grantor intended. Another problem is that trusts are funded by an initial gift of money to them, which may be reversed under laws regarding fraudulent transfers.

This means a creditor may be able to get at the money held in the trust if, within four years of the initial transfer, it is able to prove that the grantor is insolvent and the money was a gift. Even judgment creditors who get judgments against the grantor after the trust was already funded may be able to do this. A creditor may also be able to argue that a grantor who receives frequent distributions from the trust is a de facto beneficiary, which might mean the court would rule that it is a self-settled trust and thus accessible to the creditor.

When people are thinking about trust planning, they may want to talk to their attorney about trust options other than an SPOA trust. There are of course a variety of trust vehicles that can often be of use. One example is when the grantor wants to set limits on when distributions can be made.