Spendthrift Clause – Glossary | RJP Estate Planning

Trust Terms

A trust provision that shields a beneficiary's inheritance from their creditors, lawsuits, and poor spending decisions.

A spendthrift clause is a protective provision found in many trusts. It stops a beneficiary from transferring, pledging, or assigning their trust interest before receiving a distribution.

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.