Also known as: spendthrift clause · spendthrift provision · spendthrift trust clause
Written by attorneys — see sources below.
A term of a trust which restrains both voluntary and involuntary transfer of a beneficiary's interest. The restraint prevents a beneficiary from assigning the interest and blocks creditors from reaching it before distribution.
Sasha Stone creates a trust for her nephew Spencer Silver and includes a clause stating his interest is held subject to a spendthrift trust. Spencer later tries to sell his future distributions to a third party. The clause blocks the attempted transfer because it restrains both voluntary and involuntary alienation of the interest.
Selena Singh is the beneficiary of a trust containing a spendthrift provision. A judgment creditor obtains an order attempting to attach future distributions before they reach Selena. Because the provision is valid, the court refuses the attachment and leaves the distributions under trustee control until paid.
Sydney Santos receives income from a trust whose instrument attempts to bar only involuntary transfers by creditors. A judgment creditor petitions to attach distributions. The clause fails for lack of dual restraint, so the court authorizes attachment of present and future payments.
Serena Soto is beneficiary of a discretionary trust that also contains a spendthrift clause. A personal creditor obtains a judgment and demands the trustee be ordered to make distributions. The court denies the request because creditors cannot compel discretionary payments even when a spendthrift provision exists.
Simone Sanders creates a revocable trust for herself and later faces a large personal judgment. Creditors seek the trust assets while she is alive. The spendthrift language does not shield the property because the settlor retains full revocation power over the assets.
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 the beneficiary's interest is held subject to a spendthrift trust or using similar words satisfies the requirement. The language must restrain both voluntary assignments by the beneficiary and involuntary creditor attachments. Courts examine whether the provision meets this dual-restraint test before enforcing protection.
Supporting sources
A valid spendthrift provision prevents creditors from attaching or reaching distributions prior to actual receipt by the beneficiary. The trustee may distribute without interference from prior claims. Once the beneficiary receives the funds, ordinary creditor remedies apply to the money in the beneficiary's hands.
Supporting sources
No. During the settlor's lifetime, assets in a revocable trust remain reachable by the settlor's creditors regardless of any spendthrift language. The law treats the property as still belonging to the settlor because of the retained revocation power. Creditors may therefore execute against the trust assets while the settlor lives.
Supporting sources
No. Even when a trust contains a spendthrift provision, a creditor cannot force the trustee to exercise discretion and distribute funds. The protection applies whether or not the discretion is guided by a standard. The court leaves the decision to distribute entirely with the trustee.
Supporting sources
…Grantor’s said son shall take and receive, per stirpes and not per capita , one equal share thereof absolutely.” There is a spendthrift provision for both principal and income, applicable after the death of the grantor, and it is also provided that the Trustee shall have authority to receive any other funds granted, devised, or…