What is a Spendthrift Trust?
A Spendthrift Trust helps to protect the beneficiary from creditors. Most of the assets in the Trust will pretty much be safe from banks or creditors. However, creditors can still collect any money paid directly to the beneficiary from the Trust. If you think that your beneficiary could have problems with creditors, you can give the Trustee broad control over the Trust. The Trustee may be instructed by the Trust to withhold income and/or principal from the beneficiary. For maximum effectiveness, a Spendthrift Trust should be irrevocable. It must also give the Trustee full discretion over the assets of the Trust, so the Trustee will have full power in deciding when and how much money should be given to your beneficiary.
A Spendthrift Trust (also known as a “Spendthrift Clause”) is a trust or a provision in a trust or will that gives an independent trustee or personal representative full authority to make decisions as to how and when any trust funds may be spent by a beneficiary. This means that a beneficiary’s creditors (credit institutions, banks, collection agencies, etc.) are unable to gain access to funds in the trust. The purpose is to prevent a “spendthrift” beneficiary from selling or potential gifting a portion of the funds in the trust until the trustee or personal representative deems it appropriate as the funds are not controlled by the beneficiary.
A Spendthrift Trust helps to protect the beneficiary from creditors. Most of the assets in the Trust will pretty much be safe from banks or creditors. However, creditors can still collect any money paid directly to the beneficiary from the Trust. If you think that your beneficiary could have problems with creditors, you can give the Trustee broad control over the Trust. The Trustee may be instructed by the Trust to withhold income and/or principal from the beneficiary.
A “spendthrift” trust is one created for the purpose of providing a fund for the support of a beneficiary and at the same time securing that fund against the beneficiary’s own improvidence or incapacity. This is accomplished by providing in the trust instrument that the interest of the beneficiary shall not be assigned or transferred by him and shall not be subject to the claim of his creditors. Such spendthrift provisions may be drawn to apply to both income and principal of the trust to which the beneficiary may be entitled in the future. Spendthrift trusts and spendthrift provisions in trusts are generally considered to be valid in the vast majority of states, including Massachusetts, whether the beneficiary’s interest is in the income or principal of the trust. Indeed, the leading case upholding the validity of a spendthrift provision respecting income to which a trust beneficiary is entitled is a Massachusetts one decided in 1882. Arguments against the validity of spendthrift trus
A spendthrift trust is a trust that is created for the benefit of a person that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. Creditors of the beneficiary generally cannot reach the funds in the trust, and the funds are not actually under the control of the beneficiary.
