Spendthrift Provision May Protect Trust Assets When Under Attack
As the trustee of a San Diego trust, you may find yourself embroiled in a lawsuit involving the creditors of one or more of the beneficiaries of the trust. Fortunately for the beneficiaries of the trust, you do not have to automatically comply with the demands of these creditors, even where the debts are seemingly valid. This is because some trusts contain a provision that is designed to prevent creditors from invading the trust property. This provision is known as a “spendthrift provision.”
Generally, spendthrift trusts are created for the following reasons:
- To protect the trust assets when a beneficiary is irresponsible with money
- To protect the trust assets when the beneficiary suffers from an addiction, such as to gambling, drugs, or alcohol
- To protect the trust assets when creditors are chasing the beneficiary
- To protect the trust assets when the beneficiary is at risk of being deceived or defrauded by others
If the inheritance that is under attack contains a spendthrift provision, this may be strong protection against the creditor. A properly drafted clause will protect the trust income and principal from an attachment by a creditor, even while the beneficiary is receiving benefits from the trustee.
In order to determine whether a spendthrift clause can protect you during San Diego trust litigation, consider the following:
- Does the beneficiary own any of the trust assets?
- Does the beneficiary have any right to offer trust principal or income as a guarantee of repayment for a loan?
- Does the beneficiary have any control over the trust’s assets?
- Are any distributions to the beneficiary required under the terms of the trust?
- Does the trust contain language that specifically refers to the provision as a spendthrift provision?
- Did the creditor provide the beneficiary with a necessity, such as food or shelter?
- Is the beneficiary under an obligation to make child or spousal support payments?
To learn more about how creditors can assert a claim during the trust administration process in San Diego, view our helpful article, “Trust Administration Creditors Claim Procedure.” We also encourage you to find us on Facebook to keep up to date with the latest news surrounding trust administration and litigation matters in California.
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