In Rush, an estate tried to enforce a self-settled spendthrift trust without a state statute protecting it. Roger Sessions settled a trust in the Cook Islands in 1994. The trust was to be governed by the law of the Cook Islands. He placed a 99% limited partnership interest in a Colorado limited partnership, as well as real property in Illinois into the trust. At his death, these assets totaled nearly $19 million. Sessions was both the settlor and the lifetime beneficiary of the trust. The trust was irrevocable and it authorized the trustees to make distributions to Sessions for his maintenance, support, education, comfort, well-being, pleasure, desire and happiness. The trust also named Sessions as the trust protector, giving him the absolute power to appoint or remove trustees and to veto any of their actions.
In 1995, Sessions made an irrevocable pledge to plaintiff of $1.5 million at his death for the construction of a new president's house on the university campus. In reliance on the pledge, plaintiff constructed the house. Sessions later was diagnosed with late-stage lung cancer. He blamed the plaintiff -- the hospital -- for not diagnosing the cancer sooner so that it could be treated. In an act of retaliation, he executed a new will revoking his prior pledge to the hospital.
After his death, plaintiff sued Sessions' estate for the $1.5 million pledge, but the estate was found to contain less than $100,000. Thereafter, the plaintiff amended its complaint and sued to reach the assets of the irrevocable self-settled spendthrift trust that Sessions had created. The Illinois Appellate Court ruled that the assets of the trust could not be used to satisfy the plaintiff's claim, but the Illinois Supreme Court reversed, ruling that the law in Illinois for over 140 years has been that if a settlor creates a trust for the settlor's own benefit and inserts a spendthrift clause, the clause is void as to the then-existing and future creditors, and creditors can reach the settlor's interest under the trust.
The estate tried to argue that the Fraudulent Transfers Act abrogated the common-law rule, because the common-law rule provides greater protection than the statute. It also argued that the statute applied to transfers made with the intent to defraud creditors, and that the transfer in Sessions' case was made years before he rescinded his pledge. The Illinois Supreme Court disagreed and held that the statute and the common law supplement one another. Both the common law rule and the state are for the general purpose of protecting creditors, but the common law rule focuses on the additional matter of an interest retained by the settlor of a specific kind of trust, and not simply the fraudulent transfer of an asset, as does the statute.
As a result, Illinois will not join the growing list of domestic asset protection states, such as Nevada and Delaware, unless the Illinois state legislature acts.