Spendthrift Trust

A spendthrift trust is a trust which is created for another person. The person creating the trust is called the “settlor,” while the person who benefits from the trust is known as the “settlor.”

How Spendthrift Trusts Work

The special needs trust or qualified personal residence trust is frequently established in order to provide a benefit for a person who is unable to manage his or her affairs due to disability or other reasons, such as excessive overspending.  The beneficiary of the trust may not use the trust property to pay his or her debts when the property is contained in the trust; however, once the property is given to the beneficiary, creditors may seek to obtain the property up to a certain amount, usually $15,000.00. There are some states, however, which permit creditors to seek “surplus income” which is defined as residuary income after the basic support and/or education payments have been made.

In such states, the excess surplus can be paid to the creditors. Whether the surplus income payment will be permitted is subject to a court hearing and judicial determination. The spendthrift trust is created by a formal, legal trust document and must contain language which indicates the intention of the settlor to create the trust.  The trust must also include the appointment of a trustee and a “res”, which is the property in the trust, or multiple trusts.  The spendthrift trust can exist for the lifetime of the beneficiary, or the trust administration may exist for a particular period of time, depending upon the settlor’s wishes.  There are a small number of states that do not recognize spendthrift trusts.  In these states, in the event that a trust seeks to establish a spendthrift trust, these provisions will simply be stricken and ignored.

Legal Help

Spendthrift trusts are useful where estate planning efforts seek to provide assistance and protection for disabled persons.  The spendthrift trust provides a shelter for property which is utilized for the maintenance of the beneficiary.  Spendthrift trusts are not appropriate for every estate plan; therefore, a consultation with an experienced estate planning attorney will ensure that your specific needs and interests are fulfilled by creating an estate plan which is tailored to your particular requirements.