What is a spendthrift provision?

A spendthrift provision is a legal term used to describe a clause in a trust document that prevents the beneficiary of a trust from transferring, selling, or disposing of their assets. It is used to protect a beneficiary from creditors or from themselves in cases of irresponsible spending habits. In North Carolina, these provisions can be included in trust documents to protect a beneficiary from having their assets taken away from them. They often include language that prohibits a trustee from distributing any assets to a beneficiary if the beneficiary has indicated a risk of spending the assets in an irresponsible manner. For instances in North Carolina, a spendthrift provision can be used when a trust is established for a young person who might not have the capacity to manage their own assets. It has also been used to protect special needs beneficiaries from creditors. This clause basically prohibits the beneficiary from disposing of any trust assets without the approval of the trustee. In addition, a spendthrift provision often contains language that sets specific provisions such as prohibiting the beneficiary from selling or gifting trust assets, limiting the right of creditors to seize assets, and restricting the beneficiary’s freedom to borrow against or dispose of the trust assets. Overall, the purpose of a spendthrift provision is to make sure that the assets of the trust remain safe and are used in a responsible manner that benefits the beneficiary.

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What is a spendthrift provision?

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