By: Rocky Mountain Wills & Trusts

What Is A Spendthrift Clause And How Does It Help My Family?

Latest News

What is a Spendthrift Clause?

Most estate plan trusts include provisions of some kind or another. The spendthrift clause can limit a beneficiary from using the assets in the trust. This can be especially useful when you are aware that an intended beneficiary has money issues or poor spending habits. The spendthrift trust could prevent these beneficiaries from spending or borrowing against trust fund assets.

The spendthrift clause usually requires that only a certain amount of the trustee’s money can be given to the beneficiary. But it also usually makes it so that the beneficiary’s creditors cannot place liens or other judgments against the assets of the trust.

Why Would You Want to Consider Implementing a Spendthrift Clause?

Typically, one would consider putting a spendthrift provision into a trust if they thought a beneficiary would misuse or mishandle the assets or otherwise borrow against those assets in order to repay creditors. It is important to note that one cannot set up a spendthrift trust to protect their assets from creditors looking to settle debts. The spendthrift trust only provides protection for the people named as beneficiaries.

Proper estate planning means protecting assets for future generations and intended heirs. However, sometimes we know that those heirs aren’t the best at handling money, or perhaps they have creditors breathing down their necks. A spendthrift clause can help protect assets meant for the beneficiary from the beneficiary if this is deemed necessary.

Which Debts Cannot Be Avoided Via Spendthrift Trusts?

Though a trust can help defend assets from creditors, taxes, probate, and reckless spenders, no trust should be considered 100% bulletproof.

Spousal support, child support, and certain government claims may be enforced against assets locked up in a trust if they cannot otherwise be repaid. State law can decide that such entities are not creditors and therefore not blocked by spendthrift clauses.

How Could a Spendthrift Trust Help Your Family?

So long as assets remain in a trust, a beneficiary’s creditors cannot attach interest to those assets. The beneficiary could have their money troubles, but with a well-written spendthrift clause, those financial issues should never threaten to suck the trust dry. A spendthrift provision is meant to block any “voluntary and involuntary” transfers of assets from the trust.

A well-written will and trust can be the determining factor in whether your estate plan best defends your interests both for your legacy and for the futures of your beneficiaries. If you think a spendthrift clause may be a smart provision to add to your trust, please contact an estate planning attorney in your state. Contact our law firm today at (720) 420-1039 to learn more about how we can help you with your situation.