Also known as: spendthrift trusts
Written by attorneys · grounded in primary & secondary sources — see below
A trust whose terms include a provision that restrains both voluntary and involuntary transfer of a beneficiary's interest. The provision is valid only when it bars assignment by the beneficiary and attachment by creditors before the trustee delivers a distribution.
Scott Summers created an irrevocable trust for his son Sean Steele and included a clause stating that Sean's interest shall not be anticipated or assigned by him or reached by his creditors. A judgment creditor later sought to attach future distributions. The clause satisfied the requirement that both voluntary and involuntary transfers be restrained, so the creditor could not compel the trustee to pay distributions directly to it.
Serena Soto was the sole beneficiary of a trust containing an express spendthrift clause funded by her endorsement income. After divorce a court ordered her to pay former spouse Seth Shapiro monthly alimony. The former spouse obtained an order directing the trustee to pay arrears from trust distributions because the spendthrift provision does not bar enforcement of a support judgment held by a former spouse.
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Sofia Stern created an irrevocable trust for her daughter that contained a spendthrift clause. After the daughter's death the IRS disputed whether the interest passed under state law. A state court determined that the spendthrift restraint was valid and the federal tax authorities accepted that adjudication when calculating the taxable estate.
Stephen Shaw held a beneficial interest in a spendthrift trust funded by his own contributions. The United States obtained a tax lien against him. The lien attached to the maximum amount the trustee could distribute for his benefit even though the trust instrument barred voluntary and involuntary transfers.
Sean Steele inherited a remainder interest in a spendthrift trust and attempted to disclaim it to avoid a federal tax lien. The disclaimer was ineffective because the interest constituted property subject to the lien under federal law regardless of the spendthrift restraint or the attempted renunciation.
A clause stating that the beneficiary's interest shall not be anticipated, assigned, or reached by creditors satisfies the requirement. Words of similar import such as holding the interest subject to a spendthrift trust also suffice under the statute.
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Yes. A spendthrift provision is unenforceable against a beneficiary's former spouse who holds a judgment for support or maintenance. The court may order the trustee to pay present or future distributions directly to the former spouse.
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No. A creditor of a settlor-beneficiary may reach the maximum amount the trustee could distribute to or for the settlor's benefit regardless of any spendthrift language.
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No. A creditor cannot compel a distribution that is subject to the trustee's discretion even when the trust contains a spendthrift provision and even when the trustee has allegedly abused its discretion.
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…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); Restatement (Second) of Trusts § 157 (1959). The state court in Marriage of Campa took its implicit determination that the…