What Is a Spendthrift Provision?
A spendthrift provision is a clause in a legal document, typically a trust, that limits the beneficiary's ability to transfer, assign or otherwise dispose of his interest in the trust.
Other People Are Reading
-
Significance
-
A spendthrift provision is often required to create a spendthrift trust, where an independent trustee decides how to spend the trust funds for the beneficiary's benefit.
Purpose
-
The purpose of a spendthrift provision is to prevent wasteful, extravagant and otherwise unwise spending by the beneficiary. The provision protects the trust by prohibiting its use as a security and preventing the beneficiary's creditors from attaching to her interest.
-
Limitations
-
Normally the provision only covers the future interest in the trust. Its protection does not extend to the money already distributed to the beneficiary. Additionally, the trust is subject to applicable state statutes. Some states will disregard the provision to fulfill child support and alimony obligations and satisfy debt for essential living expenses like food and shelter. Other states might either limit the protection to the amount necessary to support the beneficiary or disallow spendthrift trusts altogether.
-
