What a Spendthrift Clause Protects Against
Without a spendthrift clause, a beneficiary's creditors could claim their share of the trust. A spendthrift provision prevents this. It keeps the trust interest out of reach until funds are distributed. Common threats it guards against include:
- Creditor judgments and lawsuits
- Divorce settlements targeting inherited assets
- Bankruptcy proceedings
- A beneficiary's own impulsive financial decisions
How It Works in Practice
Arizona law (A.R.S. §14-10502) recognizes spendthrift provisions in trusts. Once a distribution is made and deposited into the beneficiary's personal account, the protection ends. The funds become the beneficiary's personal property. The clause only protects assets while they remain inside the trust.
Spendthrift clauses matter most for families with beneficiaries who face financial difficulties, substance abuse issues, or divorce.
For the full Arizona overview of how spendthrift clauses fit into asset-protection planning, including dynasty and discretionary trusts, see our pillar guide: Spendthrift & Asset-Protection Trusts in Arizona: The Complete Guide.