What Does Spendthrift Trust Clause Mean?
A spendthrift trust clause is a provision in a trust that prevents a beneficiary from promising a third party (usually a creditor) payment from any amount that they will receive from the trust in the future.
It is also known as the spendthrift clause or spendthrift provision.
Insuranceopedia Explains Spendthrift Trust Clause
The spendthrift trust clause was instituted to avoid reckless financial decisions by a beneficiary.
Three parties are relevant to the clause: the grantor (the person who creates the trust), the trustee (the one who manages it), and the beneficiary (the one who will benefit from the trust in the future).
When the grantor asks the trustee to insert this provision in the trust, the beneficiary cannot make any financial decision based on what they will receive from the trust. They cannot pledge payment to a creditor and use the future benefit as assurance for payment. When the time comes for the creditor to request payment from the trustee, the latter can point to this provision and refuse their demand.