What Counts as an Overdue Distribution
Some trusts require the trustee to make specific distributions at certain times. These are called mandatory distributions. They might include distributions at a stated age, distributions triggered by a power of withdrawal, or distributions required when the trust terminates. When a trustee fails to make a mandatory distribution within a reasonable period after it comes due, creditors gain an opening.
Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal if the trustee has not made the distribution to the beneficiary within a reasonable period after the mandated distribution date unless the terms of the trust expressly authorize the trustee to delay the distribution to protect the beneficiary's interest in the distribution.
A.R.S. § 14-10506(A)The spendthrift provision does not protect overdue mandatory distributions. Once the trustee should have distributed the funds but did not, the asset essentially belongs to the beneficiary, and creditors can treat it that way.
The Line Between Mandatory and Discretionary
Not every distribution qualifies. The statute defines "mandatory distribution" narrowly. It includes distributions the trustee is required to make under the trust terms: a payout at a stated age, a withdrawal right exercise, or a distribution at trust termination. It does not include distributions that depend on the trustee's judgment, even when the trust uses a standard like "health, education, support, or maintenance."
This distinction matters for trust drafting. If the trust uses language that combines discretion with direction, the distribution is not mandatory for creditor purposes. A well-drafted trust can also include a provision expressly authorizing the trustee to delay distributions to protect the beneficiary's interest, which preserves the spendthrift shield even when a distribution date has passed.
