Spendthrift Trusts

A spendthrift trust is a trust where the beneficiary does not have full control over the trust property. More specifically, the beneficiary is restricted from directly accessing the trust principal or promising it to anyone else (such as a creditor). Instead, the beneficiary receives a benefit from the trust through the trust’s named trustee. The benefit could be in many forms, such as monetary payments directly to the beneficiary, property bought by the trustee for the beneficiary, or services arranged by the trustee for the beneficiary.

Spendthrift trusts can be used in a variety of scenarios. First, a spendthrift trust could be used where the grantor of the trust wants to leave money to a beneficiary but is worried that the beneficiary will squander the money if he or she has full control of it. For example, minor children, people suffering from addiction, and people easily defrauded or not good with money. Second, a spendthrift trust could be used to set aside money for the care and future treatment of a beneficiary with special needs. In this scenario, the trustee would have discretion to allocate trust funds to cover the expenses as needed. Finally, a spendthrift trust could be used to protect the trust’s property from the beneficiary’s creditors. Because the beneficiary does not have full control of the trust’s property in a spendthrift trust, creditors cannot reach the trust’s property to repay debts owed by the beneficiary. In all of these scenarios, a spendthrift trust protects trust property by restricting the beneficiary’s control.

A spendthrift trust may be an important piece of your estate plan if you are worried your beneficiaries are unable or incapable of responsibly making use of the trust’s property. If you think you need a spendthrift trust or are interested in learning more, contact the Indiana Elder Law Attorneys at McNeelyLaw. Our attorneys are ready to help you with all of your estate planning needs.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.