Spendthrift clause is a provision in a trust or will that protects the assets of the trust or estate from the creditors of the beneficiary. It prevents the beneficiary from assigning or transferring their interest in the trust or estate, and it also prevents creditors from attaching or garnishing the assets.
Spendthrift clauses are often used to protect assets for minors, disabled individuals, or individuals with a history of financial mismanagement. They can also be used to protect assets from divorce or bankruptcy.
There are two main types of spendthrift clauses:
- Discretionary spendthrift clauses: These clauses give the trustee the discretion to decide whether or not to distribute trust assets to the beneficiary. Creditors cannot force the trustee to distribute assets to the beneficiary, even if the beneficiary has debts.
- Mandatory spendthrift clauses: These clauses require the trustee to distribute trust assets to the beneficiary. However, the trustee can still make distributions to the beneficiary in a way that protects the assets from creditors. For example, the trustee could distribute assets to the beneficiary in installments or for specific purposes.
Spendthrift clauses are complex legal documents, and it is important to have an attorney review any trust or will that contains a spendthrift clause.
Here are some examples of how spendthrift clauses can be used:
- A grandparent may create a trust for a grandchild with a spendthrift clause to protect the assets from the grandchild’s creditors.
- A parent may leave assets to a child with a disability in a trust with a spendthrift clause to ensure that the child’s needs are met.
- A spouse may leave assets to a spouse with a gambling addiction in a trust with a spendthrift clause to prevent the spouse from gambling away the assets.
Spendthrift clauses can be an effective way to protect assets from creditors and ensure that they are used for the intended purpose.