What Counts as an Overdue Payout
Some trusts require the trustee to make specific payouts at certain times. These are called mandatory distributions. They may include payouts at a stated age, amounts tied to a withdrawal right, or distributions when the trust ends.
When a trustee fails to make a mandatory payout within a reasonable time, 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 clause does not protect overdue mandatory payouts. Once the trustee should have sent the funds but did not, the asset belongs to the beneficiary in the eyes of the law. As a result, creditors can treat it that way.
Mandatory vs. Discretionary
Not every payout qualifies. The statute defines "mandatory distribution" narrowly. It covers only payouts the trustee must make under the trust terms.
For example, a payout at a stated age, a withdrawal right, or a payout at trust termination all count. Payouts that depend on the trustee's judgment do not count. This is true even when the trust uses a standard like "health, education, support, or maintenance."
This distinction matters for trust drafting. A well-drafted trust can include a clause that lets the trustee delay payouts to protect the beneficiary's interest. This keeps the spendthrift shield in place even after a payout date has passed.