Also known as: spendthrifts · spendthrift trust
Written by attorneys — see sources below.
A term of a trust that restrains both voluntary and involuntary transfer of a beneficiary's interest. The restraint prevents the beneficiary from assigning the interest and bars creditors from reaching it before distribution.
Frank created an irrevocable trust for Bob and included a clause stating that Bob's interest shall not be anticipated or assigned by him or reached by his creditors. Mountain Byte later obtained a judgment against Bob and sought attachment of future distributions. The clause satisfied the requirement that a spendthrift provision restrain both voluntary and involuntary transfers, so the creditor could not reach undistributed amounts.
Stella Shapiro created a trust for her son without any restraint on transfers. A creditor obtained a judgment and asked the court to attach present and future distributions. Because the beneficiary's interest was not subject to a spendthrift provision, the court authorized attachment of distributions to satisfy the judgment.
Solomon Silver funded a trust for his daughter that stated only that her interest could not be assigned. A judgment creditor sought to reach future distributions. The clause failed to restrain involuntary transfers and therefore did not qualify as a valid spendthrift provision.
Sophia Singh created a trust stating that the beneficiary's interest was held subject to a spendthrift trust. A creditor attempted to attach distributions before receipt. The words of similar import were sufficient to restrain both voluntary and involuntary transfers.
Samantha Stone created a discretionary trust for her niece with language allowing distributions for health and education. A tort creditor sought to compel distributions to satisfy a judgment. The creditor could not force distributions even though the trust contained a spendthrift provision.
A beneficiary held an interest in a spendthrift trust while marital dissolution proceedings were pending. The nonparticipant spouse sought to reach the interest to satisfy support obligations. The spendthrift protection yielded to the support claim under applicable domestic relations principles.
Isaac Boggs began working for South Central Bell in 1949 and remained employed until his retirement in 1985. He was married to Dorothy Boggs from 1949 until her death in 1979, and the couple had three sons. After Dorothy died, Isaac married Sandra Boggs in 1980, and they remained married until Isaac's death in 1989. Upon retirement, Isaac received a lump-sum distribution of $151,628.94 from the Bell System Savings Plan, which he rolled over into an Individual Retirement Account worth $180,778.05 at his death. He also received 96 shares of AT&T stock from the Bell South Employee Stock Ownership Plan and a monthly annuity of $1,777.67 from the Bell South Service Retirement Program. Dorothy's will bequeathed one-third of her estate to Isaac outright along with a lifetime usufruct in the remaining two-thirds, with naked ownership passing to the sons. A 1980 Louisiana judgment of possession ascribed to Dorothy's estate a community property interest in Isaac's Savings Plan account valued at $21,194.29. After Isaac's death, Sandra began receiving a survivor annuity and other benefits. The sons filed suit in Louisiana state court claiming a portion of the retirement benefits under Dorothy's will and Louisiana community property law. Sandra then filed a declaratory judgment action in the United States District Court for the Eastern District of Louisiana asserting that ERISA preempts the sons' claims. The District Court granted summary judgment against Sandra. The Fifth Circuit affirmed. The Supreme Court granted certiorari.
View caseA clause stating that the beneficiary's interest shall not be anticipated, assigned, or reached by creditors restrains both voluntary and involuntary transfers. Words of similar import such as holding the interest subject to a spendthrift trust also suffice.
Supporting sources
A valid spendthrift provision prevents a creditor from reaching the beneficiary's interest or distributions before the trustee delivers them. Once the beneficiary actually receives a distribution, the funds become subject to ordinary creditor remedies.
Supporting sources
No. State law creates an exception allowing a former spouse or child with a support judgment to attach present or future distributions. The court may order the trustee to pay an equitable amount not exceeding what the trustee would have distributed under the standard.
Supporting sources
Generally no. A creditor may not compel a distribution subject to the trustee's discretion even if the trust contains a spendthrift provision. An exception exists when the claim is for child or spousal support and the trustee has failed to comply with a standard or abused discretion.
Supporting sources
…see Marriage of Campa, supra , at 124, 152 Cal. Rptr., at 367-368, and the basic principle that a beneficiary's interest in a spendthrift trust, despite otherwise applicable protections, can be reached in the context of divorce and separation. See E. Griswold, Spendthrift Trusts 389-391 (2d ed. 1947) (summarizing state case law);…