spendthrift clause


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Related to spendthrift clause: spendthrift trust

spendthrift clause

n. a provision in a trust or will that states that if a prospective beneficiary has pledged to turn over a gift he/she hopes to receive to a third party, the trustee or executor shall not honor such a pledge. The purpose is to prevent a "spendthrift" beneficiary from using a potential gift as security for credit on a speculative investment. Example: Junior Jones is talked into an investment in Florida swampland, but has no money in hand to pay for it. So he tells the developer he will soon receive $50,000 from his aunt's trust, and signs an assignment of the expected $50,000 to the developer. When the aunt dies, the trustee must ignore the developer's demand for payment based on the written assignment, but may pay the funds directly to Junior. (See: trust, will)

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39) Accordingly, spendthrift clauses are routinely used in the United States to protect a settlor's right to dispose of his or her assets.
The inclusion of spendthrift clauses in trusts has been a controversial issue since these clauses were first recognized and enforced by the courts.
The fact that spendthrift clauses are unenforceable against these exception creditors means only that these creditors have remedies against a beneficiary's interest similar to those of creditors of beneficiaries with interests in a trust that does not include a spendthrift provision.
If there is no spendthrift clause and the beneficiary transfers his discretionary interest, the trustee will be liable to a creditor for any distributions the trustee makes to the beneficiary after notice that the beneficial interest has been transferred to the creditor.
In addition, the trust instrument should contain a spendthrift clause to ensure that the beneficiary may not pledge or use the assets of the trust.
Bankruptcy Code, a spendthrift clause is enforceable if it is "enforceable under applicable non-bankruptcy law.
Given this environment, it is likely that the courts in these states will continue to issue judgments that provide creditors access to the assets in out-of-state trusts, despite spendthrift clauses (i.
Spendthrift clauses are designed to shelter policy values or proceeds, to the extent permitted by law, from claims of creditors of a beneficiary or to any legal process against a beneficiary.