As part of the many tools used in creating an estate plan, an individual may choose to use spendthrift trust provisions to protect assets from creditors of his beneficiaries. Unless spendthrift trust provisions are incorporated, a beneficiary can generally transfer his interest in the trust. If this is the case, a creditor can obtain a court order. The court order will force the beneficiary to transfer his interest in the trust to the creditor. However, trusts that incorporate spendthrift provisions prevent the beneficiaries from transferring their interests. This will help protect the assets from their creditors.
Four Creditors Free From Spendthrift Trust Provisions:
While in many cases a spendthrift trust will successfully accomplish the goal of protecting assets from the creditors of beneficiaries, there are exceptions. Spendthrift provisions will not restrict certain types of creditors when it comes to seeking repayment for the debts that are owed by the beneficiary. The following are four such types of creditors:
- First of all, creditors seeking payment for providing the basic necessities of life to the beneficiary, such as food or shelter.
- Furthermore, judgment creditors seeking payment for child support or alimony.
- Also claims for taxes by the state and federal governments.
- Lastly, judgment creditors who have provided services that protected the beneficiary’s interest in the trust.
In conclusion, as a trustee of a spendthrift trust, you must be very careful during the trust administration process in order to ensure that you are properly complying with any rules or laws relating to creditors. The experienced attorneys at the Grossman Law Firm can help. Learn more about how we have helped other clients firsthand—view our client testimonials page today
Spendthrift trust (noun):
A trust that is designed to protect the trust assets from the creditors of a beneficiary or the creator of the trust. To read more about spendthrift trust click here.
An organization (ie:bank) or someone else can manage the money or property in a trust usually at a set period of time. They are managed by Trustees and are set up to help better serve the beneficiary’s interests. It is a legal document that tells the Trustee how to specifically handle the money and assets on behalf of the beneficiary according to the Trusts wishes.
A person who benefits from a trust, will, or life insurance policy. This includes heir, heiress, inheritor, legatee; recipient, receiver, payee, donee, assignee; devisee, grantee.
- Invoking the Creditors Claim Procedure
- Creditors Claim Procedure During Trust Administration
- Spendthrift Provisions and Trust Lawsuits
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