What is a Spendthrift Trust and how does it work?

A spendthrift trust is a type of estate planning trust used to protect a beneficiary’s inheritances from creditors or bad financial decisions. Spendthrift trusts are legally binding documents which the beneficiary cannot alter or change. The trust is usually created by a grantor, such as a parent or grandparent, who places a certain amount of assets in the trust and assigns a trustee to manage the assets for the benefit of the beneficiary. The trustee is held to a higher fiduciary standard than other trustees and must protect the assets from the beneficiary’s creditors and from the beneficiary’s own poor decisions. The trust may contain provisions that require the trustee to disburse income or principal only for the beneficiary’s health, education, maintenance or support. The grantor can decide when and how the assets will be distributed. In Texas, spendthrift trusts have certain special rules that must be followed in order for the trust to be effective. Certain provisions must be included in the trust document in order to protect the assets from creditors, including a spendthrift clause that prohibits the beneficiary from assigning or transferring their interest in the trust assets. Furthermore, Texas law requires the trustee to keep detailed records of all investments and distributions and to keep the assets separate from any other assets owned by the beneficiary. Spendthrift trusts can be an effective way to protect assets from creditors while providing for the beneficiary’s needs. By entrusting the assets to a trustee with a higher fiduciary standard, the grantor can be assured that their assets will be managed responsibly.

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What is a Spendthrift Trust and how does it work?

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