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 one statutory crack — 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 whenever the trustee transacts with their own spouse, descendants, siblings, or parents — so a parent-trustee dealing with their own child is presumptively self-dealing, and such a 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 cannot route trust money to discharge their own child-support obligation.
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 Wood County–area 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 creditors are kept out

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)). This is the Restatement (Third) of Trusts § 60 rule that a creditor "stands in no better shoes than the beneficiary": if the beneficiary can't compel a distribution, neither can the beneficiary's creditor.

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)). Under UTC § 504(c), a court may compel a discretionary distribution to a support claimant only "to the extent a trustee has not complied with a standard of distribution or has abused a discretion," capped at what the trustee would have had to distribute — and UTC § 503 alone lets the claimant attach distributions but "unlike Section 504, does not authorize" the claimant to compel one. Absent a distribution standard the trustee breached or an abuse of discretion, the claimant gets nothing: there is no distribution to attach, and none can be forced into existence.

The type of trust decides whether the exception bites — and a support-standard trust is very different from a purely discretionary one. Where a trust is written to a support standard (an "ascertainable standard" — the trustee must distribute for the beneficiary's support/health/education), distributions are effectively required, so a support claimant can reach them. That is what happened in Drevenik v. Nardone, 862 A.2d 635 (Pa. Super. Ct. 2004): a trust created for a father's "support, welfare, and education" — a support trust, not a pure-discretion one — was ordered to pay his own child-support arrears because that standard meant the trust's assets were meant to meet the family's daily needs. By contrast, in a genuinely discretionary trust nothing is required to be distributed, so — as Section 2 above explains — there is no distribution to reach and, absent an abused standard, none can be compelled.

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), never to the child's parent. That is exactly the posture assumed here.

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).)

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.