## Facts

- Tryon B. Allen inherited substantial assets from his parents.
- In 1956, a Kentucky court adjudged Allen mentally incompetent, and a committee (guardian) was appointed to manage his property and address debts exceeding $200,000.
- Allen experienced recurring alcoholism and related psychiatric treatment, and he had difficulty managing his affairs.
- In 1961, Allen agreed to place his property in trust as part of an effort to have a court declare him competent again.
- After an order restoring his competency, Allen executed a trust agreement (dated December 27, 1961) naming Deposit Guaranty National Bank (DGNB) as trustee.
- The trust required the trustee to pay Allen the net income for life.
- The trust permitted Allen to request distributions of up to 25% of the trust principal in any year, but only with approval of a designated “Advisor to the Trustee.”
- On Allen’s death, the trust corpus was to pass to his nephew, Arthur D. Allen, III.
- The trust contained a spendthrift provision purporting to prevent Allen from pledging the trust income or corpus and to bar creditors from reaching trust property; the trust was recorded to give notice of the restriction.
- Despite the trust’s terms, Allen applied for credit from Walter E. Heller & Co. (Heller) and cited the trust as an asset.
- Heller extended credit to Allen, who executed a promissory note and later defaulted.
- Heller obtained a judgment against Allen (pursued against the administrator of Allen’s estate after Allen’s death) and then sued DGNB, the remainder beneficiary, and the beneficiary’s guardian in Mississippi chancery court to satisfy the judgment from trust assets.
- The chancery court held the spendthrift provision ineffective as to Allen’s creditor and entered a decree subjecting trust property to payment of Heller’s judgment; DGNB and the other defendants appealed.

## Issues

1. Whether, under Mississippi law, a settlor who creates a trust with his own property for his own benefit can use a spendthrift clause to prevent his creditor from reaching the trust assets.
2. Whether the creditor’s notice of the spendthrift restriction (including record notice) and the requirement of advisor approval for principal distributions prevent the creditor from subjecting trust assets to the creditor’s judgment.

## Decision

- The Mississippi Supreme Court affirmed the chancery court’s decree.
- The Court held that the trust property was subject to Heller’s claim as a creditor of the settlor-beneficiary.
- The Court concluded that the spendthrift provision did not bar Heller from reaching trust assets to satisfy its judgment.

## Legal Principles

- A person cannot place his own assets in trust for his own benefit and, by adding spendthrift language, insulate those assets from his creditors.
- Where the settlor is also a beneficiary and retains meaningful rights to enjoy or obtain trust property, creditors may reach the trust to satisfy valid claims.
- A condition requiring trustee or advisor approval for distributions does not necessarily protect a self-settled trust from the settlor’s creditors, especially where the arrangement leaves the settlor with substantial practical access to trust property.
- Recording a spendthrift clause or giving creditors notice of the restriction does not make a self-settled spendthrift restraint effective against the settlor’s creditors.

## Conclusion

Deposit Guaranty National Bank v. Walter E. Heller & Co. holds that Mississippi will not allow a settlor-beneficiary to use a self-settled trust, even one recorded and containing a spendthrift clause and an advisor-approval condition for principal withdrawals, to keep a judgment creditor from reaching the trust assets to satisfy the settlor’s debt.


Deposit Guaranty National Bank v. Walter E. Heller & Co., 204 So. 2d 856 (1967)