Also known as: spendthrift limitations · spendthrift clause · spendthrift provision
Written by attorneys — see sources below.
A term of a trust that restrains both voluntary and involuntary transfer of a beneficiary's interest.
Sebastian Santos created a trust holding his business interests and included a clause barring any beneficiary from assigning rights or allowing creditors to seize them. When a judgment creditor attempted to attach future distributions, the clause prevented both the assignment and the involuntary reach. The court upheld the restraint because it blocked transfers in either direction.
Sean Steele held a trust interest without any clause limiting transfers. His judgment creditor obtained a court order attaching present and future distributions. The attachment succeeded because no restraint applied to the beneficiary's interest.
Spencer Silver's trust contained language that only attempted to block voluntary assignments. A creditor reached the interest through attachment because the clause failed to restrain involuntary transfers as well. The court treated the provision as invalid under the dual-restraint requirement.
Stephen Shaw was the beneficiary of a trust giving the trustee sole discretion over distributions, and the instrument contained a spendthrift limitation. A creditor sought to compel payment of income, but the court refused because the trustee's discretion prevented any enforceable right to distributions.
Steven Silva's spouse died and left an interest in undistributed pension benefits subject to a restraint on alienation. The surviving spouse's creditors could not reach the benefits because federal law treated the restraint as effective against both voluntary and involuntary transfers.
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 caseNo. During the settlor's lifetime, property in a revocable trust remains reachable by the settlor's creditors regardless of any spendthrift limitation in the instrument.
Supporting sources
A spendthrift limitation is valid only when it restrains both voluntary and involuntary transfers of the beneficiary's interest. A clause that restrains only one type of transfer fails and leaves the interest exposed to creditors.
Supporting sources
No. Even without a spendthrift limitation, a creditor cannot force a trustee to make a discretionary distribution, and the presence of the limitation reinforces that protection.
Supporting sources
No. A spendthrift limitation remains unenforceable against claims by the state or the United States to the extent a statute or federal law so provides.
Supporting sources
A creditor or assignee may reach a mandatory distribution of income or principal if the trustee has not made the distribution within a reasonable time after the designated date, even if a spendthrift limitation exists.
Supporting sources
…logic would even permit a spouse to transfer an interest in a pension plan to creditors, a result incompatible with a spendthrift provision such as § 1056(d)(1). Community property laws have, in the past, been preempted in order to ensure the implementation of a federal statutory scheme. See, e. g. , McCune v. Essig , 199 U.…