If you leave a lump sum of cash to a child who is terrible with money, going through a bitter divorce, or facing a massive lawsuit, that inheritance will be gone in months. A Spendthrift Trust is designed to protect your heirs from their own worst impulses and external predators.
The Spendthrift Clause
A spendthrift trust includes a specific legal clause that prevents the beneficiary from selling, giving away, or borrowing against their future interest in the trust. Because the beneficiary cannot legally access the principal on demand, their creditors cannot force the trustee to hand it over either.
Note
The Trustee's Discretion
The key to a spendthrift trust is an independent trustee who has absolute discretion over when and how much money is distributed. If the beneficiary is being sued, the trustee simply stops making distributions until the threat passes.
Divorce Protection
In many states, an inheritance kept in a spendthrift trust is considered separate property, not marital property. If your child gets divorced, their ex-spouse generally cannot claim half of the trust assets in the settlement.