Also known as:spendthrift trust · spendthrift-trust · spendthrift protection · asset protection trust
Written by attorneys · grounded in primary & secondary sources — see below
A trust containing a provision that restrains both voluntary and involuntary transfer of a beneficiary's interest. A term stating that the beneficiary's interest is held subject to a spendthrift trust, or words of similar import, is sufficient.
Sources & Authorities· 1 primary source
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How it applies
Common Examples
5
Judgment Creditor Seeks Attachment
Sierra Santos created an irrevocable trust for her nephew Santiago Sanchez that stated his interest shall not be anticipated or assigned or reached by creditors. Santiago later incurred debts from a failed business venture. A judgment creditor obtained a court order attempting to attach future distributions before the trustee delivered them. The spendthrift language prevented the creditor from reaching the interest or compelling payment of undistributed amounts.
Former Spouse Claims Alimony
Sabrina Shah established a trust for her former husband Steven Silva funded by endorsement income and containing an express spendthrift clause. After divorce a court ordered Steven to pay alimony to Sabrina. She petitioned to attach present and future trust distributions. The spendthrift provision yielded to the former-spouse support exception, allowing the court to order the trustee to pay arrears and installments directly.
Boggs v. Boggs520 U.S. 833 (1997)
State Tax Claim Against Distributions
Stella Shapiro created a trust for her son Santiago Sanchez that held his interest subject to a spendthrift trust and barred judgment creditors. The state revenue department obtained a judgment for unpaid taxes and sought to redirect distributions. The spendthrift clause remained effective because no statute expressly authorized the department to reach the protected interest.
Commissioner of Internal Revenue v. Estate of Bosch387 U.S. 456, 465 (1967)
Federal Tax Lien on Trust Interest
Serena Soto transferred assets into a revocable trust naming herself lifetime beneficiary and containing spendthrift language. The United States obtained a tax lien against her and sought to execute on the trust property while she remained alive. Because the trust was revocable the lien attached to the assets despite the protective clause.
United States v. Craft535 U.S. 274, 287, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002)
Disclaimed Interest Subject to Lien
Summit Bank held a judgment against Stella Shapiro. She disclaimed an interest in a spendthrift trust created by her parent. The bank asserted that the tax lien attached to the disclaimed property at the moment of the parent's death. The disclaimer did not defeat the lien because the interest was reachable before any protective transfer took effect.
Drye v. United States528 U.S. 49 (1999)
Common questions
Frequently Asked
5
What language creates a valid spendthrift provision?+
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. The provision must restrain both voluntary and involuntary transfers to be valid.
Supporting sources
May a judgment creditor attach future distributions under a spendthrift trust?+
No. A valid spendthrift provision prevents a creditor from reaching the interest or any distribution before the trustee delivers it to the beneficiary. The creditor may pursue only assets already in the beneficiary's possession through ordinary collection procedures.
Does a spendthrift provision protect against claims for child or spousal support?+
No. The provision is unenforceable against a beneficiary's child, spouse, or former spouse who holds a judgment for support. The claimant may obtain a court order attaching present or future distributions, though the court may limit relief to what is appropriate under the circumstances.
Supporting sources
Can a settlor's own creditors reach assets in an irrevocable spendthrift trust?+
Yes, to the extent the trustee may distribute property to or for the settlor's benefit. The creditor may reach the maximum amount the trustee could lawfully apply for the settlor regardless of spendthrift language.
Supporting sources
Are assets in a revocable trust protected by a spendthrift clause from the settlor's creditors?+
No. During the settlor's lifetime property in a revocable trust remains subject to the settlor's creditors as though it still belonged to the settlor. The clause provides no defense against those claims.
Supporting sources
. In prior tax litigation, a federal court held that the
trust
was a
spendthrift trust
and that, therefore, the assignments were invalid and the income taxable to the beneficiary. The
trust
ees then brought an action in the state court; the state courts determined that the…
has been held to constitute "property" for purposes of § 6321' even though the beneficiary may not transfer that interest to third parties"). Excluding property from a federal tax lien…
], but federal law must be applied in determining whether the interest constitutes ‘property’ for purposes of § 6321.”); 21 West Lancaster Corp. v. Main Line Restaurant, Inc. , 790 F. 2d…
§ 512, p. 583 (2d ed. 1947).[^maj-22] The Railroad Retirement Act resembles a
trust
in certain respects. If that definition is applied here, then the offsetting award respondent seeks would…
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