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A spendthrift trust is a trust that limits a beneficiary’s ability to access trust assets all at once. It also protects those assets from the beneficiary’s creditors. If the beneficiary owes money, gets sued, or goes through a divorce, the assets inside the trust are generally off-limits to whoever is trying to collect.
The name comes from the original purpose: protecting heirs who might quickly spend through (or “spend through”) an inheritance. But modern spendthrift trusts serve much broader purposes — they protect beneficiaries from lawsuits, bankruptcy, and creditors regardless of the beneficiary’s financial habits.
How a Spendthrift Trust Works
- You (the grantor) create the trust and transfer assets to it.
- You name a trustee to manage the assets. You can name yourself as trustee during your lifetime if you keep the trust revocable (though a revocable trust does not provide creditor protection for you as grantor).
- You name beneficiaries who will receive income or principal distributions from the trust.
- You include a “spendthrift clause” in the trust document. This provision states that beneficiaries cannot assign or transfer their interest in the trust, and that creditors cannot attach or intercept distributions before they are made to the beneficiary.
The key: a creditor can only access money after it has been distributed to the beneficiary. Money sitting inside the trust is protected. Once the trustee cuts a check and the beneficiary deposits it in their personal bank account, it becomes fair game.
What the Spendthrift Clause Does
The spendthrift clause has two effects:
- Voluntary alienation restriction: The beneficiary cannot pledge, assign, or sell their interest in the trust. They cannot borrow against future distributions. They cannot give their interest to someone else.
- Involuntary alienation restriction: Creditors cannot garnish, attach, or intercept the beneficiary’s interest before distribution. A judgment creditor cannot force the trustee to pay them instead of the beneficiary.
These restrictions work as long as the assets are inside the trust. The trustee has discretion over how much to distribute and when — which is how spendthrift trusts work in practice. A trustee with full discretion can simply not distribute to a beneficiary who is facing creditor claims.
What Spendthrift Trusts Cannot Protect Against
Spendthrift protections are not absolute. Courts have carved out exceptions in most states for:
- Child support and alimony: Most states allow a former spouse or child to reach trust distributions for support obligations. A spendthrift clause generally does not block child support enforcement.
- Federal tax liens: The IRS can reach spendthrift trust distributions in most circumstances.
- Fraudulent transfers: If you fund a trust to defraud existing creditors, courts can unwind the transfer. The trust must be funded when you are solvent and before you have notice of a creditor claim.
- Government claims: Some government claims (Medicaid recovery, for example) may not be blocked.
Spendthrift Trust vs. Discretionary Trust
The two concepts often work together. A discretionary trust gives the trustee full control over whether and how much to distribute. A spendthrift clause protects distributions that are made.
The strongest protection comes from combining both: a fully discretionary trust with a spendthrift clause. The trustee controls the tap (discretionary), and whatever flows out is protected before it reaches the beneficiary (spendthrift).
Who Should Use a Spendthrift Trust?
Spendthrift trusts make sense in several situations:
- Beneficiary in a high-litigation profession: Doctors, lawyers, architects, and business owners who face professional liability benefit from keeping inheritance in a trust where creditors cannot reach it.
- Beneficiary with debt problems: If you are worried an heir will have creditors or is already dealing with debt, a spendthrift trust keeps the inheritance protected even after a bankruptcy.
- Beneficiary in an unstable marriage: A spendthrift trust can help ensure that an inheritance does not become marital property subject to division in a divorce.
- Young or financially immature beneficiaries: The original use case. Stage distributions over time (a third at 25, a third at 30, the rest at 35, for example) and protect the undistributed portion with a spendthrift clause.
Spendthrift Trust vs. Outright Bequest
| Feature | Spendthrift Trust | Outright Inheritance |
|---|---|---|
| Creditor protection before distribution | Yes | No |
| Divorce protection | Generally yes (while in trust) | No (commingling issues) |
| Beneficiary control | Limited (trustee discretion) | Full |
| Ongoing costs | Trustee fees, admin | None |
| Complexity | Moderate | None |
How to Set Up a Spendthrift Trust
A spendthrift trust can be a standalone trust or a provision within a broader revocable living trust or testamentary trust. Most estate planning trusts include spendthrift clauses as a standard feature.
You need an estate planning attorney to draft the trust document. The spendthrift clause itself is a standard provision, but the overall trust structure — who serves as trustee, how distributions are triggered, what happens at the beneficiary’s death — requires careful drafting.
Costs: if you are adding spendthrift language to a new revocable living trust, expect $1,500–$5,000 total. If you are drafting a standalone irrevocable spendthrift trust, expect $3,000–$10,000 or more depending on complexity.
For related estate planning strategies, see our guides on dynasty trusts for multi-generational wealth and how to minimize federal estate tax.
FAQ
What is a spendthrift trust?
A trust with a clause that blocks beneficiaries from assigning their interest and blocks creditors from intercepting distributions before they are paid out. Assets inside the trust are protected from lawsuits, bankruptcy, and creditors.
Can it protect against child support?
Not in most states. Child support and alimony are typically carved out as exceptions to spendthrift protection. Courts can still require the trustee to satisfy those obligations.
Does it protect against divorce?
Generally yes, while assets stay in the trust. If the beneficiary keeps trust distributions separate from marital assets, the trust assets are typically not subject to division in a divorce.
Can you be your own trustee?
In an irrevocable trust, you generally cannot be both trustee and beneficiary without losing the creditor protection. An independent trustee is needed for strong protection.
How much does it cost?
Typically $1,500–$5,000 as part of a broader revocable living trust. A standalone irrevocable spendthrift trust runs $3,000–$10,000+ depending on complexity.
Rates as of May 2026. Trust and creditor protection laws vary by state. Consult an estate planning attorney for advice specific to your situation.