As a further precaution, the trust should contain a spendthrift provision
, which prohibits the assignment of any interest or distributions from the trust to creditors of the beneficiary.
7) For example, in the United States, as a matter of public policy, a trust's spendthrift provision
was traditionally void with respect to the settlor's creditors where the settlor was also a beneficiary.
In addition, assuming the SLAT includes a spendthrift provision
, the beneficiary's creditors would generally be barred from invading the trust.
2) Whether or not a trust contains a spendthrift provision
, if a trustee may make discretionary distributions to or for the benefit of a beneficiary, a creditor of the beneficiary, including a creditor as described in s.
A spendthrift provision
is a provision in a trust agreement that states that the beneficiary cannot sell, pledge or encumber his beneficial interest, and that a creditor cannot attach a beneficiary's interest.
Historically, Illinois courts have treated a spendthrift provision
as a material purpose of the trust that prohibits termination.
A traditional trust might also have a spendthrift provision
to protect trust assets from a beneficiary's creditors.
In a broad sense, a spendthrift provision
is a provision in a trust in which the grantor attempts to provide funds to a beneficiary while limiting the ability of the beneficiary to squander the funds or creditors of the beneficiary from reaching the funds.
If the goal is to provide as much creditor protection as possible, the trust must contain a spendthrift provision
with respect to the beneficial interests held in trust.
one universally accepted exception to the spendthrift trust doctrine: state courts and federal bankruptcy courts will not enforce a spendthrift provision
in a self-settled trust.
If a plan is governed by the Employee Retirement Income Security Act (ERISA), then the act's spendthrift provision
exempts benefits from creditors.
When a trust includes a valid spendthrift provision
, a beneficiary may not transfer his interest in the trust and a creditor or assignee of the beneficiary may not reach any interest or distribution from the trust until the beneficiary receives the interest.