Also known as: spendthrift clause · spendthrift provision · spendthrift trust language
Written by attorneys — see sources below.
A clause in a trust instrument that restrains both voluntary and involuntary transfers of a beneficiary's interest. The clause prevents a beneficiary from assigning the interest and shields it from creditors until distribution occurs.
Serena Soto created a trust for her nephew Scott Summers and inserted language stating that no beneficiary interest could be assigned or reached by creditors. When a judgment creditor attempted to attach future distributions, the court held the clause valid because it restrained both voluntary and involuntary transfers. The creditor could not reach the assets until the trustee actually distributed them to Scott.
Sophia Singh placed assets in trust for her daughter Sabrina Shah without any restraint on transfers. A creditor obtained a court order attaching present and future distributions because the absence of spendthrift language left the interest exposed. The court limited the attachment to amounts appropriate under the circumstances.
Seth Shapiro drafted trust terms stating only that distributions were subject to trustee discretion but omitted any restraint on assignment. A beneficiary's creditor successfully reached the interest because the language did not restrain both voluntary and involuntary transfers. The court treated the clause as ineffective under the validity requirement.
Stephen Shaw created a trust giving the trustee sole discretion over income distributions to his sister Starlight Media. Even though a creditor held a judgment, the court refused to compel any distribution because the spendthrift language combined with trustee discretion blocked compulsory payment. The creditor could not force the trustee to act.
Sabrina Shah's trust contained standard spendthrift language protecting her interest from creditors. After her death, a federal claim under ERISA sought to reach the trust assets for unpaid benefits. The court held that federal law preempted the state spendthrift protection, allowing the claim to proceed despite the clause.
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 caseThe language must restrain both voluntary and involuntary transfers of the beneficiary's interest. A clause that merely labels the trust a spendthrift trust or uses similar words is sufficient if it meets this dual restraint requirement.
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No. During the settlor's lifetime, assets in a revocable trust remain reachable by the settlor's creditors regardless of any spendthrift language. The retained power to revoke means the settlor is treated as still owning the property for creditor purposes.
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No. A creditor generally cannot compel a distribution that is subject to the trustee's discretion, even when the trust contains spendthrift language and even if the trustee has abused discretion or applied a distribution standard.
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A court may authorize a creditor to reach the beneficiary's interest by attachment of present or future distributions. The court may tailor the relief to the circumstances of the case.
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…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…