A spendthrift trust is an express trust, and all the requirements for creating a valid trust in New York apply. The distinguishing characteristic of a spendthrift trust is that it prohibits the beneficiary from assigning present or future income from the trust, or from selling his rights to the principal to creditors. New York law generally presumes that all trusts are spendthrift trusts, so special language is not necessary to create one, though creators of trust often state that their intent is to create a spendthrift trust.
What are the benefits of a spendthrift trust?
In a spendthrift trust, the creator grants the trustee tight control over the principal of the trust to keep a beneficiary who may not be good with money or who is mentally disabled from having access to the principal or income of the trust. Creditors can only get at the income paid to the beneficiary, who cannot pledge the trust assets to them or be duped into doing so by financial predators. The creator often grants the trustee broad discretion to determine the beneficiary’s needs so that the trust only releases amounts required by the beneficiary. In general, a spendthrift trust enables you:
- To provide lifetime income to a beneficiary whom you believe would be unable to manage money or property if you simply gave it to him or her;
- To protect the beneficiary from creditors seeking to satisfy debts or claims arising from lawsuits;
- Stop the beneficiary from depleting the trust.
Can I establish a spendthrift trust and make myself beneficiary to avoid creditors?
Are there exceptions to the rule that creditors cannot gain access to the trust assets?
Yes, the rules restricting access by creditors to spendthrift trusts do not apply:
- To federal tax liens;
- To alimony and child support obligations;
- To a creditor who has procured an enforceable judgment against the beneficiary; the creditor in such cases can collect on the judgment up to ten percent of the trust income;
- To the extent the income from the trust is in excess of that needed to support the beneficiary, it may be subject to creditor claims in court.
I would like to establish a specific spendthrift trust:
- Determine who you want to provide for and what you want to use to provide for them.
- Gather relevant documents about the property you would like to place in trust.
- Get in touch with an experienced estate and trust lawyer.
Changes may occur in this area of law. The information provided is brought to you as a public service with the help and assistance of volunteer legal editors, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or to substitute for the advice of a lawyer.