Descriptive label
Spendthrift Trust
A trust containing a spendthrift clause that limits voluntary and involuntary transfer of a beneficiary's interest.
Note: "Spendthrift Trust" is a descriptive label, not necessarily a standalone legal trust form. Its rules depend on the underlying arrangement and applicable law.
Typical purpose
To protect a beneficiary's inheritance from imprudent spending and certain creditors.
How it operates
The trustee controls distributions; beneficiaries cannot assign future interests.
Who might use it
Grantors concerned about a beneficiary's financial habits or exposure.
Assets commonly involved
- ◆Any trust property
Potential advantages
- ◆Beneficiary-level protection in many states
Legal and tax limitations
- ◆Exceptions exist (e.g., child support, certain taxes)
- ◆Does not protect the grantor's own assets in most states
Establishment & administration
- ◆Valid spendthrift clause
- ◆Independent trustee recommended
Common mistakes
- ◆Assuming absolute protection
- ◆Beneficiary serving as sole trustee
Questions to ask a professional
- ◆Which state's law should govern this arrangement, and why?
- ◆Who should serve as trustee and successor trustee?
- ◆How will the trust be taxed at the federal and state level?
- ◆What assets must be retitled, and who handles the transfers?
- ◆What ongoing records, filings, and reports will be required?
Educational information only. Trust law varies by state; consult qualified legal, tax, and financial professionals before acting.
Next step
Move from understanding to a properly reviewed plan.
Discuss a Spendthrift Trust With TangierEducational information only. Not legal, tax, or investment advice.