Spendthrift Clause

A Spendthrift Clause is a provision commonly included in trusts that protects a beneficiary’s interest in the trust assets from creditors and the beneficiary’s own poor financial decisions. This clause restricts the beneficiary’s ability to access the trust funds directly and prevents them from transferring their interest in the trust to others, thereby safeguarding the assets from being claimed in a bankruptcy or legal judgment.

The primary purpose of a Spendthrift Clause is to ensure that the assets held in trust are used for the intended beneficiaries rather than being squandered or lost to creditors. For example, if a trust is established for a beneficiary who has demonstrated irresponsible spending habits or is susceptible to financial mismanagement, the Spendthrift Clause can limit their access to the trust funds to distributions made at the discretion of the trustee.

In practice, this means that while the beneficiary may receive payments from the trust, they cannot demand a lump sum or access the principal amount directly. Additionally, creditors typically cannot reach the trust assets to satisfy the beneficiary’s debts until the trustee distributes the funds to them.

In Texas, including Houston, the Spendthrift Clause is recognized and enforceable, although certain exceptions exist. For instance, claims for alimony or child support may still reach the trust assets, illustrating that while the clause provides significant protections, it is not absolute in all situations.