Florida 5th District Court of Appeals Upholds Spendthrift Trusts as Constitutional

Different types of trusts offer varying levels of protection from creditors, and just because an individual is the beneficiary of a trust containing a significant amount of assets, does not mean that creditors of that individual will be able to go after those assets if the individual fails to pay his or her debts. Mr. and Mrs. Zlatkiss found this out the hard way when they loaned $350,000 to All American Team Concepts, LLC. Louis Steinmetz, the company’s principal, signed a personal guaranty on behalf of All American Team Concepts, which seemed like a safe bet to the Zlatkisses due to Steinmetz’s trust worth over $6 million. The trust, however, contained a spendthrift provision, which, if valid “prevents creditors or assignees of the beneficiary from reaching any of the trust funds until they are dispersed to the beneficiary.” Zlatkiss v. All American Team Concepts, LLC, 2013 WL 2359108 (Fla. 5th DCA May 31, 2013) (citing Miller v. Kresser, 34 So. 3d 172 (Fla. 4th DCA 2010)). Once Steinmetz defaulted on the loan, the trustee of Steinmetz’s trust, Wells Fargo, refused to make distributions to cover the debt. The Zlatkisses claimed that Florida Statute sections 736.0501-.0507, which recognize the enforceability of spendthrift trusts, violated the Florida Constitution by preventing access to the courts. Florida Statute § 736.0501 provides that “the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary’s interest by attachment of present or future distributions to or for the benefit of the beneficiary or by other means.”

Mr. and Mrs. Zlatkiss’s constitutional challenge is based on Article I, Section 21 of the Florida Constitution, which states that “[t]he courts shall be open to every person for redress of any injury, and justice shall be administered without sale, denial or delay.” In Kluger v. White, the court further explained that where a right of access to the courts for a redress of a particular injury has been provided by statutory law or common law, the Legislature cannot abolish that right “without providing a reasonable alternative to protect the rights of the people of the State to redress for injuries, unless the Legislature can show an overpowering public necessity for the abolishment of such right, and no alternative method of meeting such public necessity can be shown.” 281 So. 2d 1, 4 (Fla. 1973). The Zlatkisses alleged that sections 736.0501–.0507 abolished their “‘common law’ right ‘to execute a monetary judgment against any beneficial interest held by a debtor,’ without providing a reasonable alternative or demonstrating an overpowering public necessity for the statute.” Zlatkiss, 2013 WL 2359108.
However, common law recognized the validity of the creditor-protection provisions of a spendthrift trust before the adoption of sections 736.0501–.0507. Therefore, “these statutes cannot be considered under Kluger as a legislative act abolishing a common law right, but rather, recognizing one.” Zlatkiss, 2013 WL 2359108. Additionally, the court held that the right to access the courts does not “guarantee the ability to enforce a judgment.” Zlatkiss, 2013 WL 2359108.
If you or someone you know has questions about spendthrift trusts, please do not hesitate to contact the law offices of Chepenik Trushin LLP. The experienced attorneys at Chepenik Trushin are ready, willing, and able to assist with you estate planning needs. Please feel free to contact us for an initial consultation.