Also known as: spendthrift protections · 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. The provision prevents a beneficiary from assigning the interest and blocks creditors from reaching it before distribution.
Stephen Shaw created an irrevocable trust for his son Samuel Soto. The instrument stated that Samuel's interest shall not be anticipated or assigned by him or reached by his creditors. When Samuel later tried to pledge future distributions as collateral for a loan, the trustee refused to honor the pledge because the clause blocked voluntary transfer.
Skylar Sullivan held a beneficial interest in a trust that lacked any spendthrift language. A judgment creditor obtained a court order attaching future distributions. The court permitted the attachment because no provision restrained involuntary transfer of the interest.
Stella Shapiro was the beneficiary of a trust stating that her interest shall be held subject to a spendthrift trust. She attempted to assign future distributions to settle a separate debt. The trustee disregarded the assignment because the clause restrained voluntary transfer.
Spencer Silver held a beneficial interest subject to a spendthrift provision. A tort creditor obtained a judgment and sought to attach future distributions before the trustee paid them. The court denied the request because the clause blocked involuntary transfer of the interest.
Sophia Singh transferred assets into a revocable trust of which she remained the sole lifetime beneficiary. A judgment creditor sought to reach the assets during her lifetime. The court permitted recovery because the retained power of revocation left the assets subject to her creditors.
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 caseWords stating that the beneficiary's interest shall not be anticipated, assigned, or reached by creditors restrain both voluntary and involuntary transfers. The Uniform Trust Code recognizes that a clause providing the interest is held subject to a spendthrift trust is also sufficient.
Supporting sources
A valid spendthrift provision prevents a creditor from reaching the interest or any distribution before the trustee delivers it to the beneficiary. Once the beneficiary actually receives a distribution, ordinary creditor remedies may apply to those funds.
Supporting sources
A beneficiary may not transfer an interest in violation of a valid spendthrift provision. Any attempted assignment is ineffective and the trustee must disregard it.
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.…