Protecting Trust Assets from the Federal Tax Lien



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Estate Planning & Community Property Law Journal


One common issue facing those who create trusts is how to protect beneficiaries from creditors. One of the biggest creditors is the Internal Revenue Service (IRS), which has two weapons of mass collection: the federal tax lien and the federal tax levy. These weapons regularly pierce boilerplate spendthrift provisions. Discretionary trusts do not fare much better. Court decisions over the past ten years made it increasingly likely that even pure discretionary trusts contain clauses that will traitorously turn over the treasure house keys to the federal tax lien. Once the lien attaches, the IRS can enforce it through either administrative or judicial attachments, blowing through state law barriers that keep out other creditors. This Article offers some ideas on how to keep the federal tax lien locked out from trust assets using property law concepts of springing and shifting executory interests.



Federal tax lien, Administrative levy, Foreclosure suit, Trust property, Inherent beneficiary rights, Spendthrift trusts, Discretionary trusts, Tax lien lockout provisions


1 Est. Plan. & Cmty. Prop. L. J. 295