Spendthrift Trust

A spendthrift trust is a type of trust designed to protect the trust assets from being squandered by the beneficiary and to shield those assets from the beneficiary’s creditors. This is achieved by including a spendthrift clause in the trust agreement, which restricts the beneficiary’s ability to transfer, pledge, or sell their interest in the trust. It also limits creditors from claiming the trust assets to satisfy the beneficiary’s debts, as long as the assets remain within the trust.

The trustee of a spendthrift trust usually retains control over the distribution of trust income or principal to the beneficiary. This arrangement typically allows the trustee to make payments either to the beneficiary or directly to those providing services to the beneficiary in accordance with the terms set forth in the trust document. There may even be limitations to provide funds in a controlled manner to meet specific needs like education, healthcare, or living expenses. This structure is particularly useful for beneficiaries who may lack financial responsibility, have a history of poor financial management, or face potential legal or financial liabilities.

A spendthrift trust is often used in estate planning to provide for a loved one while ensuring the trust assets are preserved and used appropriately. However, the protections of a spendthrift trust are not absolute and may not apply in cases involving certain creditors, such as those seeking child support or alimony payments.