9086 / What is a spendthrift trust?

A spendthrift is an individual who is prone to using property in an excessive or frivolous manner. Thus, a spendthrift trust serves two important purposes: (1) it protects the beneficiary of the trust from himself or herself; and (2) it prevents the beneficiary’s creditors from accessing the beneficiary’s interest in the trust.A spendthrift provision protects the beneficiary by preventing voluntary or involuntary alienation by the beneficiary.¹ The beneficiary cannot sell, give away, exchange, or otherwise transfer the beneficiary’s interest. A settlor typically does this to protect the beneficiary from misfortune or incapacity.

In addition, the spendthrift provision also allows the settlor to carry out the intent of benefitting the beneficiary, rather than the beneficiary’s creditors or assignees. A spendthrift trust does not require that the beneficiary be a “spendthrift” or declared incompetent under the law.² It is enough that the settlor has a concern about the beneficiary’s ability to manage their finances in a responsible manner.

Most states have now codified the law of spendthrift trusts. Some states make all trusts spendthrift trusts unless the settlor specifically provides otherwise. In addition, some states may restrain involuntary, but not voluntary, alienation for all trusts.³