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What Are Spendthrift Trusts?

July 31, 2023

Trusts can be used to accomplish many estate planning goals. Some of the most common of those are avoidance of probate and tax planning. They can also be used effectively for asset protection. For example, let’s say that you want to leave a gift to an heir, but you know that that heir is bad with money. Is there a way you could make the gift while still ensuring that it is protected from the heir’s creditors to the greatest extent possible? You can through a spendthrift trust with the assistance of a Springfield trust lawyer

How Spendthrift Trusts Protect Your Assets 

A spendthrift trust is a trust containing terms that prevent a beneficiary from accessing the trust assets or voluntarily or involuntarily transferring their interest in those assets. A voluntary transfer by the beneficiary could mean pledging their interest in the trust to secure a loan, while an involuntary transfer could mean a creditor filing a lien against the interest. These provisions also have the effect of preventing creditors from reaching the trust assets unless and until such time as they are distributed by the trustee to the beneficiary. So long as no distributions have been made to the beneficiary, the beneficiary’s creditors cannot look to the trust to satisfy the beneficiary’s debts. 

How to Create a Spendthrift Trust

Creating a spendthrift trust in Missouri is simple, as any trust can become a spendthrift trust by including the correct language in the trust instrument. Under RSMo § 456.502, a spendthrift provision is valid if it retains either the voluntary or involuntary (or both voluntary and involuntary) transfer of a beneficiary’s interest. Terms providing that the beneficiary’s interest is held subject to a “spendthrift trust” or other such words are sufficient to establish a trust as a spendthrift trust. 

When to Use a Spendthrift Trust 

The most obvious use for a spendthrift trust is to protect assets for beneficiaries who are financially irresponsible or who already have significant debts. They may also be good options for beneficiaries who: 

  • Are young
  • Are easily deceived or defrauded
  • Have drug or alcohol use disorders 
  • Have unpredictable careers
  • Have significant fluctuations in income 
  • Have medical issues that may cause debt
  • Own businesses 
  • Work in professions with high risks of lawsuits 

Speak to a Springfield trust lawyer for more information about whether a spendthrift trust is 

Pros and Cons of Spendthrift Trusts 

The most obvious benefit of spendthrift trusts is that they prohibit beneficiaries from accessing the trust’s assets directly, thus protecting them from being squandered or from being accessed by creditors. That benefit comes at a cost, however. Spendthrift trusts put a heavy burden on their trustees, as they must exercise strict control over the trust’s assets on behalf of the beneficiary. While some spendthrift trusts merely direct trustees to make periodic distributions, strict spendthrift trusts require the trustee to make all purchases of goods and services on behalf of the beneficiary. When choosing a trustee for a spendthrift trust, it is essential to name someone who is up to the task. 

Speak to an Experienced Springfield Trust Lawyer

If you’re considering establishing a spendthrift trust, you should speak to an attorney to help you draft the most effective trust instrument possible. To get started, please contact a Springfield trust lawyer at LifeGen Law Group by calling 417-823-9898 or using our online contact form.