What is a spendthrift provision?
Many revocable living trusts contain a provision known as a "spendthrift provision." This type of provision is generally included to protect the beneficiaries of a trust after the Trustor (the creator of the trust) has passed away and the trust has become irrevocable. The provision typically provides that the beneficiary's interest in the trust cannot be voluntarily or involuntarily transferred, and is not subject to judgments until property has actually been distributed to the beneficiary.
This type of provision is most effective when a third party (i.e., not the beneficiary) is acting as Trustee for the beneficiary and has the discretion, but is not required, to make distributions to the beneficiary. Often clients ask about this when a child or other beneficiary has creditors, but nevertheless want to leave assets to that person.
It's important to remember, however, that a Trustor cannot avail him- or herself of this benefit by placing their own assets into a trust. While a Trustor is also the beneficiary of the trust, the assets remain subject to the Trustor's creditors.