Under the terms of a trust, a trustee holds legal title to the trust assets for the beneficiary. The trust documents dictate how and when the trustee may distribute the trust assets to the beneficiary. There are many types of trusts that can be used to serve various purposes in estate planning. A recent article discussed the purpose and benefits of a spendthrift trust.
A spendthrift trust is essentially a trust with a spendthrift clause. A spendthrift clause prohibits the beneficiary from accessing the assets within the trust. This clause thereby prevents creditors of the beneficiary from intercepting payments meant for the beneficiary. Once the beneficiary receives a distribution, however, his or her creditors may then reach the distributed assets. Spendthrift clauses may also prevent beneficiaries from voluntarily or involuntarily transferring their interest in the trust.
Spendthrift trusts may protect a variety of people. They are a popular choice among parents who want to leave money to their children but are worried that their children will spend it quickly and irresponsibly. Spendthrift trusts may also protect a person against an unexpected creditor, such as the victim of a car accident, a future ex-spouse, or a business creditor.