HOME WEB NEWS IMAGES CLASSIFIEDS YELLOW PAGESPOLLS - SURVEYS WIKI COUNTRIES PHOTOS US UK INDIA
Cities Stocks Weather Movies Coupons Travel Blogs Health Horoscope Maps ASIA EUROPE Classifieds Yellow Pages
|
A spendthrift trust is a trust that is created for the benefit of a person (often because he or she is unable to control spending) that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. Creditors of the beneficiary generally cannot reach the funds in the trust, and the funds are not actually under the control of the beneficiary.
The creator of a trust (whether or not it is a spendthrift trust) is sometimes called the "trustor," "grantor," or "settlor" of the trust. A trust often will not be treated as a spendthrift trust unless the trust agreement contains language showing that the creator intended the trust to qualify as spendthrift. This is what is known as a spendthrift clause or spendthrift provision.
A spendthrift provision in an irrevocable trust prevents creditors from attaching the interest of the beneficiary in the trust before that interest (cash or property) is actually distributed to him or her. Most well drafted irrevocable trusts contain spendthrift provisions even though the beneficiaries are not known to be spendthrifts. This is because such a provision protects the trust and the beneficiary in the event a beneficiary is sued and a judgment creditor attempts to attach the beneficiary\'s interest in the trust.
Contents |
For example, the Texas Property Code provides:
A clause in the terms of a trust agreement that complies with the above-quoted statute is an example of what the law calls an "anti-alienation provision."
To continue with the example of the Texas law, the Texas Property Code further provides:
The above-quoted language essentially means that a trust instrument does not (at least, in Texas) have to contain complex legal jargon to qualify the trust as "spendthrift"; simply using the word "spendthrift" in the trust document may be sufficient.
Some creditors may compel payment out of the trust - particularly those who supply the beneficiary with "necessaries" (usually food and shelter, but sometimes clothing and transportation, if these are not extravagant). Most jurisdictions also permit the invasion of spendthrift trust assets to satisfy awards of child support and alimony.
A trust created by an individual for his or her own benefit is sometimes called a "self-settled trust." If the creator of a self-settled trust is also a beneficiary of the trust, a particular problem in the context of protection of creditors and prevention of fraud is presented: the danger that the creator of the trust is trying to defraud creditors.
To prevent individuals from creating trusts to defeat their own creditors, the laws of most states provide that a spendthrift clause in a trust document does not protect the beneficiary to the extent that the beneficiary is also the person who created the trust. For example, Texas law provides:
Further, laws in some states (like Texas) are worded so broadly that anyone transferring property to the trust might be deemed to be a "creator" (i.e., settlor, grantor, or trustor), not merely the person or persons who originally set up the trust.
However, a few states have changed their laws to provide that a person may create a self-settled spendthrift trust (i.e., a spendthrift trust for his or her own benefit). Such trusts are sometimes informally called "Alaska trusts," as Alaska was a pioneer in allowing this kind of spendthrift trust. However, because of the danger of the misuse of Alaska trusts to defraud creditors, the legality of such trusts (to the extent that they purport to protect the trust share of a beneficiary who is also a creator of the trust) is uncertain in the states not allowing self-settled spendthrift trusts.
This article is licensed under the GNU Free Documentation License. It uses material from Wikipedia
