Spendthrift Trusts
When is a spendthrift provision a good idea?
Most well-drafted Trusts contain a spendthrift provision-also sometimes called a restraint on alienation provision. Such a provision sets forth special language preventing creditors from attaching or “taking away” the interest of a beneficiary named in a Trust. Florida law enforces spendthrift provisions so long as they apply to both voluntary and involuntary transfers.
Typical spendthrift language in a Trust would read like this:
No income or principal payable to or held for any beneficiary shall, while in the possession of the Trustee, be voluntarily or involuntarily alienated, disposed of, pledged, assigned, or encumbered in any manner other than by Trustee action authorized hereby. The Trustee is authorized to withhold any sums which would otherwise be payable to the beneficiary, to pay these sums directly for the benefit of the beneficiary, or to pay these sums to the spouse or lineal descendants of the beneficiary, in order to enforce the terms of this provision.
Spendthrift provisions prevent a creditor who is owed money by a beneficiary from forcing the Trustee to pay over the beneficiary’s share of the Trust. In essence, as long as the assets (whether cash or property) to be received are still held by the Trustee, they are out of reach of the creditor. The creditor cannot use legal processes to force the assets to be turned over to the creditor. Of course, once the assets are received by the beneficiary, then any assets received would be fair game.
