OCTOBER 29, 2001 VOLUME 9, NUMBER 18
When Kyle Krueger’s grandmother established a trust for him in 1985, she may or may not have known how the 19-year-old would turn out. For whatever reason, she locked up his trust benefits until his fiftieth birthday. As it turned out, her decision was good for Mr. Krueger—but not so good for the victims of his later acts.
In 1998 Mr. Krueger (by then 32 years old) was sued by the mother of a young boy. She alleged that he not only had sex with her two-year-old son, but that he also videotaped the act and made it available over the internet. She got a court judgment against Mr. Krueger for $551,286.25.
Criminal charges were also filed against Mr. Krueger for his actions. He faced a lengthy prison sentence and little likelihood of release back into the community any time soon.
The child’s mother sought to collect her judgment from the proceeds of the trust Mr. Krueger’s grandmother had set up. She faced one major obstacle, however: the trust included what is usually called “spendthrift” language. That meant that the trustee was prohibited from paying anything directly to Mr. Krueger’s creditors, regardless of the circumstances.
Spendthrift provisions are common in trusts for the benefit of someone other than the person who establishes the trust. Though it may be difficult or impossible to restrict the availability of one’s own assets when placed in a trust, the general rule is that money set aside for the benefit of another person can be subjected to such a restriction. In fact, that is one of the primary reasons for many trusts—to protect beneficiaries from their own inability to handle funds in the future.
The victim’s mother argued that this case should be treated differently, however. She insisted that the rules should not permit the retention of funds to benefit an individual after such a heinous criminal act. In fact, she argued, the original purpose of the trust (to help care for Mr. Krueger) could no longer be met—precisely because he would likely be in prison past his fiftieth birthday.
State law in New Hampshire (like the law in most states, including Arizona) permits establishment of a spendthrift trust for another person. Even though Mr. Krueger’s later behavior was inexcusable, his grandmother’s money was set aside for his benefit and should not be reachable by his creditors, said the state Supreme Court.
A long prison sentence would not prevent the trust money from benefiting him, the court noted. Neither did it make any difference that the trust allowed Mr. Krueger to decide who would receive the balance if he died before fifty. The analysis makes it clear: the money in his grandmother’s trust did not belong to Mr. Krueger, and he did not have the power to lose it by even the most reprehensible actions. Scheffel v. Krueger, July 26, 2001.