FirstMerit Bank N.A. v. Diana L. Reese
CA Fourth Appellate District, Division Two
Filed November 19, 2015
In this recent case, the California Court of Appeals held that a creditor cannot sue to obtain an order assigning a beneficiary’s right to inherit from a trust to the creditor when the beneficiary does not consent to such an assignment. In the case at hand, the creditor was owed money (about $150,000) from the Defendant. The Defendant was alleged to be the beneficiary of a trust that provided distributions of principal and income of $11,000/month from one trust and monthly distributions of principal and income of $10,498.78. It does not appear the Defendant ever executed an assignment of her interest. The trust was a spendthrift trust.
The creditor wished to tap into the trust distributions and have the trust assign the distributions directly to the creditor. However, the Court of Appeals held that under CA law an assignment order must include an order that assigns a right to payment outright and not simply directing a judgment debtor to make payment of funds that the judgment debtor may receive from a third party (trust). Those funds are already able to be levied upon pursuant to a writ of possession, one they fall into the hands of the judgment debtor. Simply put, although the Defendant owes money – the creditor can only collect from the Defendant and not from the trust (spendthrift). Plaintiff tried to get around this by arguing that it is permitted to seek an order requiring Defendant to turn over funds already distributed to her. The Court of Appeals pointed out such argument misses the point: once the trustees have distributed the funds they are not subject to an assignment order, but can “be levied upon pursuant to a writ of possession once they fall into the hands of the judgment debtor.”