2010 Cal. App. Lexis 1896 (November 5, 2010)

Thomas Martin was arrested and imprisoned in a state correctional facility. A trust for his benefit granted the trustee uncontrolled discretion to provide for Thomas’s support, maintenance, and education. Thomas also had the right to withdraw trust assets on reaching age 35, but subject to a suspension clause providing that his withdrawal right would be suspended during any period of incarceration or probation.  

The Michigan state treasurer sought reimbursement from the trust for the costs of Thomas’s imprisonment under the State Correctional Facility Reimbursement Act (SCFRA). The probate court determined that the treasurer could not invade Thomas’s trust because it was a discretionary trust, and because of the suspension clause prohibiting Thomas from withdrawing funds while incarcerated. The treasurer appealed.  

On appeal, the Court of Appeals of Michigan affirmed on the grounds that the trust was a discretionary trust subject to the trustee’s unfettered discretion, giving Thomas no ascertainable interest in the trust and no ability to invoke the trust’s distribution clause. The court rejected the treasurer’s argument that the suspension clause was void as against public policy holding that no case law or statute prohibited such a clause and therefore the clause did not violate public policy. The court noted the exception allowing a state to reach the assets of a prisoner in an ordinary spendthrift trust and held that this exception sufficiently addressed the treasurer’s public policy concerns by facilitating the state’s collection of assets that beneficiaries actually own. The court refused to extend this exception, noting that it would be a tremendous leap to expand existing public policy to allow states to gain access to assets in which beneficiaries have no ascertainable interest.