Spendthrift Trusts Law and Legal Definition

A spendthrift trust is a trust that restrains the voluntary and involuntary transfer of the beneficiary's interest in the trust. The trust exists where there is an express provision forbidding anticipatory alienations and attachments by creditors. The aim of such a trust is to prevent it from being used as security to obtain credit. In a broader sense, the term "spendthrift trust" may include other forms of trusts, such as discretionary trusts, wherein the trustee is vested with discretion to determine the time, amount, or manner of payments to a beneficiary; trusts for the support and education of the beneficiary; trusts are conditional on the beneficiary reaching a certain age, competency of the beneficiary to manage property, or solvency of the beneficiary.

The vast majority of states ave upheld the validity of spendthrift trusts or spendthrift provisions in trusts have found whether the interest of the beneficiary is for life, for a term of years, or whether it is an interest in the principal. Jurisdictions that do not recognize the validity of spendthrift trusts generally recognize the validity of the other forms of protective trusts discussed above.

To create a valid spendthrift trust there be some provision for the restraint on, or immunity of, the interest of the beneficiary from voluntary or involuntary alienation. Furthermore, a spendthrift trust must comply with the requirements for to the creation, existence, and validity of trusts generally. In this regard, a spendthrift or other protective trust cannot be established in contravention of statute or public policy. The settlor (creator) of a spendthrift trust may not establish the trust for his or her own benefit. Also, the beneficiary of a spendthrift trust cannot be granted the entire power to control or dispose of the trust property without invalidating the spendthrift provision of the trust.