question.jpgIn Trusts and Estates

What is a spendthrift restriction?

Many times, the person who creates the trust (the settlor) will include a spendthrift restriction, which generally says that beneficiaries cannot sell or giveaway their interest in the trust property, and these provisions also attempt to prevent any of the beneficiaries’ creditors from being able to get at and take the trust property. However, once funds or property are transferred from the trust itself to the beneficiary, the beneficiary can usually do what he or she wants with it, and creditors can go after it. So spendthrift restrictions really only protect the undistributed property still being held in trust.

Spendthrift restrictions are generally included in every trust except for where state law prohibits them. Of course, even where state laws allows for spendthrift restrictions, many states have other laws that allow certain creditors to go after trust property/funds in certain instances. This is particularly true where the creditor has claims based on providing the beneficiary with necessities, such as food, clothing or medical care. So if a doctor offers a beneficiary emergency services and now seeks their payment, they may be able to go to court and get money from the trust despite the fact that the trust includes a spendthrift restriction.