## Facts

- The United States sought to collect a federal income-tax deficiency of about $412,921 from Lawrence P. O’Shaughnessy.
- Lawrence was a beneficiary of two identical discretionary trusts created in 1951 for the settlors’ grandchildren.
- The trusts authorized trustees, in their discretion, to pay to or for Lawrence’s benefit “all or such part” of principal or annual net income as they saw fit during his lifetime.
- Undistributed net income was accumulated and added to principal at year-end.
- The trusts gave trustees sole discretion to distribute all principal and accumulated income to Lawrence’s father, which would terminate Lawrence’s interest.
- The trust instruments provided that the trustees’ discretion was “absolute and binding upon all persons in interest.”
- Lawrence also held a limited testamentary power of appointment over his share, exercisable only by will in favor of a limited class.
- When the government served a notice of levy on the trustees, no distribution to Lawrence was pending; any future payments depended entirely on trustees’ discretion.
- In federal court, the trustees moved to dismiss on the ground that, under Minnesota law, Lawrence had no property interest in undistributed trust assets reachable by creditors.
- The federal district court certified to the Minnesota Supreme Court whether a discretionary trust beneficiary has “property” or a “right to property” in nondistributed trust principal or income before any discretionary distribution.

## Issues

1. Under Minnesota law, does a beneficiary of a purely discretionary trust have “property” or any “right to property” in nondistributed trust principal or income before trustees exercise discretion to distribute?
2. Does a limited testamentary power of appointment over the beneficiary’s share create a present property interest in the trust’s undistributed assets?

## Decision

- The Minnesota Supreme Court answered the certified question “no.”
- A beneficiary of a discretionary trust with absolute trustee discretion has no property or right to property in nondistributed principal or income before a distribution decision is made.
- The beneficiary’s limited testamentary power of appointment did not create a present property interest in undistributed trust assets.
- The court treated the United States as standing in the position of a creditor for the state-law property-interest inquiry; without a beneficiary property interest, there was nothing for a levy to attach to.

## Legal Principles

- Under Minnesota law, a purely discretionary trust beneficiary has only an expectancy in possible future distributions, not an enforceable ownership interest in undistributed trust income or principal.
- A beneficiary may enforce fiduciary limits (e.g., good faith and compliance with the trust instrument) and complain of abuse of discretion, but those protections do not create a right to compel distributions or a property interest in undistributed assets.
- Trustees’ genuine discretion to withhold distributions, including authority to redirect trust assets in a manner that can terminate the beneficiary’s interest, supports classifying the beneficiary’s interest as non-property until distribution.
- A limited testamentary power of appointment is generally an authority to designate recipients at death, not a present ownership interest in the appointive property.

## Conclusion

The court held that, before any discretionary distribution, a beneficiary of an absolute-discretion trust has no Minnesota-law “property” or “right to property” in undistributed trust principal or income, and a limited testamentary power of appointment does not change that result; therefore, creditors cannot reach the undistributed trust assets based solely on the beneficiary’s interest.


United States v. O’Shaughnessy, 517 N.W.2d 574 (Minn. 1994)