Legal term
Spendthrift trust
Answer: Spendthrift trust. A spendthrift trust is an express trust containing a valid restraint on alienation that prevents both voluntary assignments and most creditor claims against the beneficiary’s interest before distribution. Creditors may garnish payments when due, and recognition and exceptions vary by state. The Supreme Court has analogized ERISA’s anti‑alienation to these restraints and acknowledged pre‑acceptance disclaimers.
Rule to remember
Spendthrift trust: an express trust that includes a valid spendthrift clause restraining both voluntary and involuntary transfers of a beneficiary’s interest, shielding it from assignment and most creditor claims before distribution.
Key elements and checks
- Express clause restraining alienation of the beneficiary’s interest.
- Protection applies to both income and principal while held by the trustee.
- Creditors generally cannot place liens on trust assets; they may garnish distributions when due.
- Traditional rule: restraint is ineffective for a settlor‑beneficiary; some jurisdictions authorize self‑settled asset‑protection variants.
- Distinct from a discretionary trust: there may be mandated payments, yet the restraint protects the interest until payout.
In the source’s words
“Beneficiaries and their creditors cannot usually place liens or other judgments on the assets of the trust themselves.”
spendthrift clause | Wex | US Law | LII / Legal Information Institute
“the general principle that a designated spendthrift can disclaim his trust interest”
KENNEDY v. PLAN ADMINISTRATOR FOR DuPONT SAV. AND INVESTMENT PLAN, 555 U.S. 285 (2009) (LII)
Meaningful state variation: not every state recognizes these trusts, and recognized exceptions (and which creditors qualify) differ by jurisdiction.