Discretionary & spendthrift trusts, trustees, and child support

This page walks through how an irrevocable discretionary spendthrift trust — one set up by a third-party settlor (for example a grandparent), for a child beneficiary, and structured as a non-grantor trust as to the child's parents — actually works: who may serve as trustee, how creditor protection is built in, when a child-support claim can and cannot reach a trust, the tax posture, and how special-needs trusts fit. Wisconsin adopted the Uniform Trust Code (UTC) effective 2014 (Wis. Stat. ch. 701), so the Wisconsin section numbers below track the model act, and decisions from other UTC states interpreting the same sections are persuasive authority.

Educational and source-verified — not legal advice. Trust drafting and any child-support question turn on the exact trust language and your specific facts; consult a Wisconsin trusts-and-estates and family-law attorney before acting.

The short answer

Yes, a parent can serve as trustee of a third-party trust for their own child — but Wisconsin law puts two real guardrails on it, which is why an independent or corporate co-trustee is so common.
A properly drafted third-party discretionary spendthrift trust is strongly protected from the beneficiary's creditors — a pure discretionary interest isn't even attachable property.
The child-support exception creditor — the child-support "exception creditor" — runs against a beneficiary who owes support. Because the child is the beneficiary (and owes no support) while the parent owes it, the parent's child-support obligation is not a claim against this trust at all.
A genuine third-party, non-grantor trust attributes no income to the parent, so the Wisconsin income-attribution cases don't reach it.

1. Can a parent serve as trustee — and when is a corporate trustee better?

Wisconsin generally lets any competent person or a licensed trust company serve as trustee, so a parent may be trustee of a trust for their own child. But a parent-trustee carries two structural constraints that argue for pairing them with — or replacing them by — an independent or corporate trustee (a trust company or bank trust department):

The self-dealing presumption (Wis. Stat. § 701.0802). A trustee "shall administer the trust solely in the interests of the beneficiaries" (§ 701.0802(1)). Section 701.0802(3) presumes a conflict of interest for "a sale, encumbrance, or other transaction involving the investment or management of trust property" entered into with the trustee's spouse, descendants, siblings, or parents — selling trust property to a relative, for example. By its terms it does not make every distribution to a child beneficiary presumptively self-dealing. Where it does apply, the transaction is voidable by an affected beneficiary (§ 701.0802(2)) unless the trust terms authorize it, a court approves it, or another listed exception applies. This is the Uniform Trust Code § 802 duty of loyalty and the Restatement (Third) of Trusts § 78 "sole-interest" rule, enforced through the "no-further-inquiry" rule: a self-dealing transaction is voidable regardless of the trustee's good faith or the fairness of the deal.
A trustee can't use the trust to pay their own support duty (Wis. Stat. § 701.0814(2)(b)). A trustee "may not exercise a power to make discretionary distributions to satisfy a legal obligation of support that the trustee … personally owes another person." So a parent-trustee generally cannot route trust money to discharge their own child-support obligation. Note this is a default rule, not an absolute bar: § 701.0814(2) applies "unless the terms of the trust expressly indicate that a provision of this subsection does not apply," and § 701.0814(4) carves out certain trusts, including one whose contributions qualify for the § 2503(c) annual exclusion — a very common minor's trust. Whether the bar applies to a particular trust is a question about that instrument, which is a reason for both parents' counsel to read it.
The estate-tax / general-power trap. If a person who is both a trustee and a beneficiary holds discretion to distribute to themselves that is not limited by an "ascertainable standard" (health, education, maintenance, support — "HEMS"), that unlimited power is a general power of appointment under 26 U.S.C. § 2041 — pulling the trust into their taxable estate and exposing it to their creditors. Powers limited to a HEMS standard, and a trustee barred from discharging their own support duty, avoid this (§ 2041(b)(1)(A); Treas. Reg. § 20.2041-1(c)). This is a core reason distribution discretion is often handed to an independent "special trustee."

Co-trustees are expressly allowed. A common structure pairs a parent (who knows the child's day-to-day needs) with an independent corporate trustee — a Wisconsin trust company or bank trust department whose staff serve as professional fiduciaries — often giving the independent trustee sole authority over discretionary distributions. No Wisconsin statute requires a corporate trustee for an ordinary discretionary trust; it is a best-practice choice that neutralizes the self-dealing presumption and the general-power trap above.

2. Spendthrift + discretionary protection: how they work, and who they do and do not affect

Two separate protections stack in a well-drafted third-party trust:

Spendthrift (Wis. Stat. § 701.0502; UTC § 502). A spendthrift provision is valid only if the beneficiary is someone other than the settlor (§ 701.0502(1)(a)) — which a child-beneficiary third-party trust satisfies. A valid spendthrift clause bars the beneficiary's creditor from attaching, garnishing, or executing on the interest or a distribution "before its receipt by the beneficiary" (§ 701.0502(3)). (A self-settled spendthrift trust gets no such protection — § 701.0505 lets a settlor's creditor reach whatever the trustee could pay the settlor, even in the trustee's discretion.)
Discretionary (Wis. Stat. § 701.0504; UTC § 504). A purely discretionary interest "does not constitute an interest in property or an enforceable right," and a creditor may not attach a distribution or compel the trustee to distribute — "even if the trustee has abused the trustee's discretion" (§ 701.0504(1)–(2); UTC § 504(b)). Wisconsin reaches this result by statute, not by common law. The older "a creditor stands in no better shoes than the beneficiary" formulation is Restatement (Second) of Trusts § 155 — the rule Watts v. McKay applied. Restatement (Third) §§ 50 and 60 take a different view, treating a discretionary interest as judicially enforceable, which is one reason Wisconsin's non-uniform § 701.0504 matters so much here.

The leading illustration is Watts v. McKay, 160 Kan. 377, 162 P.2d 82 (Kan. 1945): the Kansas Supreme Court held a beneficiary's ex-spouse holding an alimony judgment could not compel a distribution from a purely discretionary trust, because the beneficiary himself could not compel it — a principle later courts (e.g., Wilcox v. Gentry, Kan. 1993) restated as black-letter law.

3. The child-support "exception creditor" — what it does and does not reach

Both the Wisconsin Trust Code and the Uniform Trust Code carve out a child-support (and spousal-support) exception creditor. Under Wis. Stat. § 701.0503(1) (UTC § 503(b)(1)), a spendthrift clause is unenforceable against a person holding a support order "against the beneficiary," who may ask a court to reach the trust. But the reach is deliberately limited, and there is a crucial distinction between attaching and compelling a distribution:

Mandatory distributions the beneficiary is entitled to receive can be ordered paid to the support claimant "as they are due, presently or in the future" (§ 701.0503(1)(a); UTC § 503(c) attachment).
Purely discretionary distributions cannot be assumed. In a genuinely discretionary trust the trustee is under no obligation to distribute anything, so no one can presuppose — or compel — that a distribution will ever be made. A support claimant can reach only a distribution the trustee independently elects to make "pursuant to the exercise of the trustee's discretion in favor of such beneficiary" (§ 701.0503(1)(b)). Wisconsin did NOT adopt UTC § 504(c), and this is the point where the model act and Wisconsin diverge hardest. Under Wis. Stat. § 701.0504(2) a creditor "may not attach present or future distributions … or … compel[] the trustee to make distributions … even if the trustee has abused the trustee's discretion," and § 701.0504(4)(b) provides that the beneficiary's own right to sue for abuse of discretion "may not be exercised by a creditor." Wisconsin is therefore more protective than the model act here, and decisions from other UTC states applying § 504(c) do not state Wisconsin law. What remains for the claimant under § 701.0503(1)(b) is a standing order against distributions the trustee does elect to make, presently or in the future — which is exactly what the circuit court entered in Grohmann.

Wisconsin does not distinguish a "support trust" from a "discretionary trust." § 701.0504(1) protects a discretionary interest "even if the discretion is expressed in the form of a standard of distribution," and Restatement (Third) of Trusts § 60 cmt. a likewise treats a support trust as a discretionary trust carrying a standard. Out-of-state cases that turn on that distinction do not transfer to Wisconsin.

And the distinction would not have saved the trust in the case most often cited here anyway. In Drevenik v. Nardone, 862 A.2d 635 (Pa. Super. Ct. 2004), the will gave the trustee "total control" and "sole discretion" over a trust for the son's "support, education, and welfare" — a sole-discretion spendthrift trust, not a support trust — and the Pennsylvania court ordered the trustee to invade both principal and income to pay the beneficiary-father's child-support arrears. It is a reminder that a discretion label is not a guarantee, and that Pennsylvania is not Wisconsin.

And in the structure at the top of this page, the child is the beneficiary and owes no support — the parent does. The parent's child-support obligation is therefore not a claim against this trust: the trust is not the parent's asset, and § 701.0503(1) simply does not apply to it. The trust may benefit the child — if and when the trustee, in its discretion, elects to distribute — but it is not a fund the parent's own support creditors can reach, and no distribution to the child can be assumed.

Income attribution: only what you must report as your own

Wisconsin does count some trust income toward a payer's own support number — but only income the payer is obligated to report as their own. In Grohmann v. Grohmann, 189 Wis. 2d 532, 525 N.W.2d 261 (1995), trust income that was income to the beneficiary under federal tax law was reachable for child support "regardless of whether a distribution is made." Stevenson v. Stevenson, 2009 WI App 29, 316 Wis. 2d 442, 765 N.W.2d 811, extended that to both grantor and non-grantor trusts where there is an obligation to report the trust's income as one's own. In a genuine non-grantor trust with a third-party settlor, the parent has no such reporting obligation — so this attribution hook does not attach to the parent.

4. Non-grantor / third-party settlor: the federal tax posture

Whether trust income is taxed to the settlor (a "grantor trust") or to the trust or beneficiary (a "non-grantor trust") is set by the federal grantor-trust rules, 26 U.S.C. §§ 671–678:

§ 671 attributes trust income to a person only "where it is specified in this subpart" — and its final sentence bars owner treatment "solely on the grounds of … dominion and control … except as specified in this subpart." Mere influence is not enough; a specific triggering power is required.
The triggers are retained settlor powers: a reversion (§ 673), power to control beneficial enjoyment (§ 674), certain administrative powers including the § 675(4)(C) power to swap assets of equivalent value (§ 675), power to revoke (§ 676), and income payable to or for the grantor (§ 677). Section 678 separately treats a non-settlor withdrawal-power holder as owner.
A bona fide third-party settlor who retains none of the §§ 673–677 powers creates a non-grantor trust — taxed to the trust or, on distributions carrying out income, to the beneficiary. Two caveats, because "non-grantor" is not by itself an answer: a trust distribution used to discharge a parent's own legal support obligation is included in that parent's gross income under Treas. Reg. § 1.662(a)-4, and § 678 can make a person holding a withdrawal power the owner. Either route can re-create the same reporting obligation that drove the result in Grohmann and Stevenson.

5. Special / supplemental needs trusts (SNTs) and public benefits

If the child has a disability, a differently-structured trust preserves means-tested SSI and Medicaid. Federal law (42 U.S.C. § 1396p(d)(4)) recognizes:

First-party / self-settled SNTs — § 1396p(d)(4)(A): funded with the disabled individual's own assets, for a person under 65, with a state Medicaid payback at death. Since the 2016 Special Needs Trust Fairness Act, a competent individual may establish their own (d)(4)(A) trust (previously only a parent, grandparent, guardian, or court could).
Pooled SNTs — § 1396p(d)(4)(C): managed by a nonprofit with separate sub-accounts — in Wisconsin, most notably WISPACT.
Third-party SNTs: funded with someone else's assets (e.g., a parent or grandparent), with no Medicaid payback. Under SSA POMS SI 01120.200, a third-party trust is "established with the assets of someone other than the trust beneficiary."

Two SSA rules matter for a co-parent:

A parent may serve as trustee. POMS SI 01120.200 expressly allows "the same person [to] serve multiple functions (such as parent, guardian, and trustee) … without acting as an agent of the claimant" — so a parent trustee does not, by itself, disqualify the child.
Court-ordered child support paid into the trust is not SSI income. Under POMS SI 01120.201(J)(1)(d), "child support or alimony payments paid directly to a trust or trustee because of a court order are considered irrevocably assigned and thus not income." By contrast, cash paid directly from the trust to the individual is counted as unearned income and reduces SSI dollar-for-dollar (SI 01120.201(I)(1)(a)) — which is why SNT distributions are typically made to third-party vendors for the beneficiary's benefit rather than as cash.

At the Wisconsin layer, Wis. Stat. § 701.0503(3) gives disability trusts heightened protection: the public-support exception to the spendthrift rule does not apply to a trust for an individual with a disability. (That carve-out addresses public-support claims; it does not, by its terms, disturb the separate child-support exception in § 701.0503(1).)

The limits on all of the above

None of this protects a trust that exists to defeat a support claim, and a page that listed only the doctrines keeping a claim out would be giving one parent a checklist and the other nothing. The rules pointing the other way are just as much Wisconsin law:

A parent who funds the trust is the settlor, whatever the paperwork says. § 701.0505 gives a settlor's creditors access to whatever the trustee could pay the settlor, and § 701.0502(1)(a) makes a spendthrift clause valid only where the beneficiary "is not treated as the settlor under s. 701.0505 (2)." A nominal third-party settlor funded by the parent does not change who the settlor is in substance.
Transfers made to hinder a creditor are voidable. Wisconsin's Uniform Fraudulent Transfer Act, Wis. Stat. ch. 242, reaches transfers made with intent to hinder, delay or defraud a creditor — and a child-support claimant is a creditor.
Wisconsin already imputes income to diverted assets. Wis. Admin. Code § DCF 150.03(4) lets a court impute a reasonable earning potential to a parent's assets where "the parent has diverted income into assets to avoid paying child support," or where income from those assets is needed to maintain the child at the standard of living they would have had.
You have to disclose it. Wis. Stat. § 767.127 requires full financial disclosure. Stevenson v. Stevenson, 2009 WI App 29 — cited above for its tax holding — arose precisely because a father did not reveal that he was a trust beneficiary. Concealment, not structure, was the problem in that case.
A court can still deviate. A child's actual resources are the first § 767.511(1m) deviation factor, and a court may weigh what a child does and does not actually receive.

Putting it together

For an irrevocable discretionary spendthrift trust with a third-party settlor, a child beneficiary, and non-grantor status: a parent may be trustee, but the self-dealing presumption (§ 701.0802), the bar on using trust funds for the trustee's own support duty (§ 701.0814(2)(b)), and the § 2041 general-power trap all point toward an independent or corporate co-trustee holding the discretionary-distribution power. The trust is strongly shielded from the child-beneficiary's creditors (§§ 701.0502, 701.0504), and — critically — the parent's separate child-support obligation is not a claim against it, because the child, not the parent, is the beneficiary. It attributes no income to the parent, and if the child has a disability, an SNT structure preserves SSI/Medicaid while a parent may still serve as trustee.

This is general legal information compiled from primary sources, not legal advice, and not a substitute for a Wisconsin trusts-and-estates and family-law attorney reviewing the actual trust instrument and your facts.