Make an appointment today 405-814-6524 800-575-6838

Can creditors claim money from a spendthrift trust?

A spendthrift trust is a trust that distributes assets over time. For instance, the trust may contain $1 million for the heir, but then it only pays out $25,000 per year. This is done to keep the person from spending all of the money at one time.

If you're thinking about setting one of these up in your will, you're probably wondering if creditors can claim the rest of the money in the trust, other than the annual payout.

After all, this would be a serious loophole that would allow your heir to "spend" the money in one shot. For example, he or she could just buy $1 million in assets on credit, fail to pay on time, and then the creditors could come demand the $1 million from the trust to pay for the assets. Your heir would effectively have purchased those items with the full value of the trust, all at once, despite the small payouts.

You'll be happy to know that this cannot happen. A spendthrift trust, in order to work properly, will be set up to block both involuntary transfers and voluntary transfers. This protects it from creditors. Technically, the assets don't really belong to your heir until the payouts are made -- $25,000 at a time, in the above example -- but they still essentially belong to your estate. Your heir can really only get as much money as you decide he or she will get.

As you can see, there are many great tools for effective estate planning to protect your assets. Make sure you look into all of them to craft the perfect will.

Source: This Matter, "Trusts and the Rights of Beneficiary Creditors," accessed Dec. 09, 2016

No Comments

Leave a comment
Comment Information

Don't Wait Any Longer

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy