Duhaime's Law Dictionary


Spendthrift Trust Definition:

US law: a trust which in design prevents a beneficiary from depleting the trust funds, or from his creditors demanding payment therefrom.

Related Terms: Discretionary Trust, Sprinkling Trust

In Security Pacific, Justice O'Scannlain wrote:

"A spendthrift trust is defined as one created to provide a fund for a beneficiary and at the same time secure it against his improvidence or incapacity.

"It is an active trust with provisions against alienation of the fund or property by the voluntary act of the beneficiary or through legal process by creditors....

"[A] spendthrift trust established by the settlor for his own benefit is invalid against the settlor's creditors.

"Where a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest."

Similarly, in Re Graham, Justice McMillian wrote:

"In general terms, a spendthrift trust is one in which the right of the beneficiary to future payments of income or capital cannot be voluntarily transferred by the beneficiary or reached by his or her creditors.

"There is a conflict of authority among the states on the question of the validity of such trusts and on the extent to which a beneficiary's right to future income and principal can be protected."

REFERENCES:

  • In re Graham, 726 F. 2d 1268 (United States Court of Appeals, 8th Circuit, 1984)
  • Security Pacific Bank Washington v. Chang, 80 F. 3d 1412 (United States Court of Appeals, 9th Circuit, 1996)

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