A spendthrift trust is a trust in which the person who makes the trust and places property or assets in it (the grantor, settlor, or trustor) includes a provision that prohibits the beneficiary’s interest in the trust from being assigned to another person or entity—whether as a gift or as collateral for a loan or debt—and prevents a creditor from reaching or attaching the beneficiary’s interest in the trust.
A spendthrift is a person who spends money wastefully or foolishly and a spendthrift provision in a trust (a spendthrift trust) is designed to preserve the trust’s assets and protect the beneficiary from the beneficiary’s spendthrift ways.
In Texas, a spendthrift trust is a legal tool that allows a grantor to place restrictions on a beneficiary's access to trust assets, thereby protecting those assets from the beneficiary's potential reckless spending and from the claims of creditors. Texas law recognizes spendthrift provisions in trusts, as outlined in the Texas Property Code. These provisions prevent the beneficiary from transferring their interest in the trust, either voluntarily or involuntarily, which means that creditors generally cannot reach the trust assets to satisfy the beneficiary's debts. However, there are exceptions to this protection, such as claims for child support, alimony, or federal tax liens. It's important to note that for a spendthrift trust to be effective, the trust must be properly established and the spendthrift provision must be clearly stated in the trust document. An attorney with experience in estate planning can provide guidance on how to set up a spendthrift trust in accordance with Texas law.
