Spendthrift Clause

A spendthrift clause does two things. It restrains the beneficiary from selling, assigning, or pledging their future interest in the trust. And it tells outside creditors they cannot reach trust assets while those assets are still inside the trust. Once the trustee actually distributes money to the beneficiary, the protection ends.

Families include a spendthrift clause because life is unpredictable. A beneficiary may face a divorce, a lawsuit, an unexpected creditor, or simply a season of poor judgment. The clause lets the trustee continue making thoughtful distributions on the beneficiary's behalf while protecting the underlying principal.

The Arizona Trust Code recognizes and enforces spendthrift restraints. ARS § 14-10502 validates spendthrift provisions when both involuntary and voluntary transfers are restrained. ARS § 14-10503 lists the narrow exceptions: child support, spousal maintenance, certain government claims, and a few others. ARS § 14-10504 further limits creditor access to discretionary trust distributions.

Documents that include a spendthrift clause typically contain language along these lines: "No beneficiary shall have the power to anticipate, assign, encumber, or otherwise dispose of any interest in this trust, and no interest in this trust shall be subject to the claims of any beneficiary's creditors before actual receipt by the beneficiary." Descriptive only.

• Discretionary trust paired with spendthrift. The trustee has no obligation to distribute, which compounds the creditor shield.
• Spendthrift with a HEMS standard. Distributions are tethered to health, education, maintenance, and support, narrowing what creditors can reach.
• Spendthrift over income only. Principal is held back; only income is restrained from voluntary transfer.

The most common failure is making the beneficiary their own trustee with broad withdrawal powers. Arizona case law and the Trust Code both treat that pattern as the equivalent of ownership for creditor purposes, and the spendthrift label does not save it. A second failure is forgetting the statutory exceptions, which can surprise a family that assumed the trust was bulletproof against a divorce or child support claim. A third pitfall is letting the trustee distribute large lump sums into a beneficiary's own bank account, where the protection ends and creditors can reach the funds.