spendthrift A spendthrift trust is a trust that is created for the benefit of a person (often unable to control his spending) 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.Spendthrift trust
What is a spendthrift clause in a trust?
A spendthrift clause is a provision in a trust that prevents creditors of any beneficiary from touching the assets as long as they remain in the trust. It basically disenfranchises creditors completely even in bankruptcy. They’re recognized in all 50 States.
What is spendthrift language in a trust?
Spendthrift language is also intended to prevent creditors from going after trust funds to pay what a beneficiary owes them. To be effective, the trust must contain very specific language. Here's a typical spendthrift provision you might find in a document creating such a trust:
What are the primary uses of spendthrift provisions?
The primary uses for spendthrift provisions include: Setting up a trust for a family member who is unable to manage his or her finances appropriately Protecting assets from the creditors of a beneficiary – even when that heir has a large amount of debt
What is an example of a spendthrift trust in Delaware?
For example, a Delaware woman went to court seeking the spousal support due her under a separation agreement with her husband, who was the beneficiary of a spendthrift trust.
What is the purpose of the clause "spendthrift"?
In effect, the clause prevents "spendthrift" beneficiaries from squandering an inheritance before they receive it and it also protects a beneficiary's inheritance from creditors. Definition provided by Nolo’s Plain-English Law Dictionary.
What is a spendthrift trust?
A spendthrift clause refers to a clause creating a spendthrift trust which limits the ability of assets to be reached by the beneficiary or their creditors. A spendthrift trust usually requires the trustee to only give a certain amount of income to the beneficiary, and often spendthrift trusts do so to prevent a financially unstable beneficiary from mismanaging the funds. Beneficiaries and their creditors cannot usually place liens or other judgments on the assets of the trust themselves, but a creditor may get a garnishment against the payments to the beneficiary. Not every state recognizes spendthrift trusts, and the ones that do differ on allowing exceptions that allow creditors to gain trust assets in certain situations.
What is a spendthrift clause?
A spendthrift clause is a provision in a trust – most trusts contain one – that prevents a trust beneficiary from using a future distribution to secure credit. The clause also prohibits payment to a creditor if it extends credit to a beneficiary based on future distributions. It may be easier to understand what they are by describing what they do.
How Can A Spendthrift Clause Help A Family Member?
A spendthrift clause in a trust can help protect family assets from creditors. The primary uses for spendthrift provisions include:
Can an estate lawyer explain spendthrift clauses?
This cursory overview does not explain all of the benefits or requirements of spendthrift clauses. An estate planning lawyer can explain your options and help you draft a trust that will protect your family members.
Can a beneficiary attach to a trust?
Creditors of a beneficiary cannot attach – gain a secured interest in – the trust assets so long as the assets remain in the trust. They may pursue repayment for a debt from a trust beneficiary but only if the debt was incurred after the beneficiary received a payment from the trust.
What is a spendthrift clause?
n. a provision in a trust or will that states that if a prospective beneficiary has pledged to turn over a gift he/she hopes to receive to a third party, the trustee or executor shall not honor such a pledge. The purpose is to prevent a "spendthrift" beneficiary from using a potential gift as security for credit on ...
What happens if a trust is not spendthrift?
If there is no spendthrift clause and the beneficiary transfers his discretionary interest, the trustee will be liable to a creditor for any distributions the trustee makes to the beneficiary after notice that the beneficial interest has been transferred to the creditor . The Alaska dynasty trust.
What is a self-settled trust?
Self-settled trust. Most states have statutes or judicial law that specifically permit " spendthrift clauses " for annuity or life insurance settlement options. Pointers on using annuities for spendthrift protection. More results ►.
Which states compete for the asset protection trust market?
Law for sale: Alaska and Delaware compete for the asset protection trust market and the wealth that follows
Do spendthrift trusts have the effect of defrauding creditors?
Conversely, those in support of spendthrift clausesargue that the settlor of a trust for the benefit of another should be able to attach to it such restrictions.(65) Moreover, they argue that spendthrift trusts are valuable in providing for and protecting unknowledgeable and incompetent beneficiaries.(66) Furthermore, proponents of these trusts maintain that the trusts do not have the effect of defrauding creditors because creditors can inquire into a beneficiary's source of income, get a credit report, or condition the giving of credit upon a statement of assets.(67)
What is a spendthrift trust?
A "spendthrift trust" is designed to protect a beneficiary who would, without oversight, quickly spend or lose any inheritance. By Mary Randolph, J.D.
How does spendthrift work?
How Spendthrift Provisions Work. The trust prohibits the beneficiaries ( the people who benefit from the trust) from spending or borrowing against the trust funds. Spendthrift language is also intended to prevent creditors from going after trust funds to pay what a beneficiary owes them. To be effective, the trust must contain very specific ...
Can a spendthrift trust be locked up?
Debts a Spendthrift Trust Can't Avoid. It isn't possible to lock up trust assets entirely. Under most states' laws, assets held in trust must be used to pay certain kinds of obligations, including child support, support of a spouse or former spouse, and debts incurred for necessities of life, such as food or shelter.
Can a trustee give money to a beneficiary?
With a trust that is designed to keep money out of the hands of an improvident beneficiary, however, it's likely that most of the disbursements will be made to others—schools, landlords, and so on—on the beneficiary's behalf. If the trustee does give trust money directly to beneficiaries, they are free to spend it however they wish.
Who is in charge of a trust?
The Trustee's Role. The trustee is in charge of the trust funds and doles them out according to the terms of the trust. A trustee may make payments directly to the beneficiary, if the trust allows or requires it.
Can a beneficiary spend money on a spendthrift trust?
In other words, the beneficiary can't spend or pledge the trust money, and creditors can't seize it. (For example, see Ga. Code Ann. § 53-12-80 .) ...
