When you create an estate plan, protecting your loved ones often means more than simply leaving them assets. You may also want to make sure those assets cannot be lost to poor spending habits or claimed by creditors. A spendthrift trust is one of the most effective ways to do this. It gives you peace of mind knowing your hard-earned property will be used as you intended while keeping it safe from outside threats.
What Is a Spendthrift Trust?
A spendthrift trust is a type of trust designed to protect the assets you place in it from being wasted or taken by creditors of the beneficiary. The trust contains a provision called a spendthrift clause that prevents the beneficiary from transferring or pledging their interest in the trust before receiving a distribution.
In simple terms, the beneficiary cannot sell or promise away their share, and creditors cannot directly access the trust property. The funds remain under the trustee’s control until they are distributed according to your instructions.
How Spendthrift Trusts Work
A spendthrift trust operates by placing limits on how and when the beneficiary can access the trust property. Here’s the general process:
- You, as the grantor, establish the trust and include a spendthrift provision.
- You appoint a trustee, who manages the assets and decides when and how to make distributions.
- The beneficiary receives money or property in controlled amounts, often in installments or for specific needs.
Because the assets stay in the trustee’s hands until distributed, creditors generally cannot seize them to satisfy debts owed by the beneficiary.
Legal Protections in New Jersey
New Jersey law recognizes and enforces spendthrift provisions in trusts. That means creditors of the beneficiary cannot compel the trustee to pay them directly from the trust. There are some exceptions, such as:
- Court-ordered child support or alimony
- Certain tax obligations
Outside of these limited circumstances, the assets remain protected within the trust until they are actually paid out.
The Role of the Trustee
The trustee plays a central role in making a spendthrift trust work. Their responsibilities include:
- Managing investments and preserving the trust property
- Following the terms of the trust to decide when distributions are appropriate
- Protecting the trust against improper claims by creditors or third parties
- Acting in the best interests of the beneficiary while honoring your wishes as the grantor
Because the trustee has significant control, it’s important to choose someone trustworthy and financially responsible. In many cases, people select a professional trustee, such as a financial institution, to ensure impartial management.
Why Consider a Spendthrift Trust?
There are several reasons you may want to include a spendthrift trust in your estate plan:
- You want to protect a child or relative who struggles with money management.
- You are concerned about potential lawsuits or creditor claims against a beneficiary.
- You want to provide long-term financial support rather than a lump sum inheritance.
- You value having more control over how your assets will be used after you’re gone.
For many families, a spendthrift trust offers a balance between providing for loved ones and ensuring that wealth is not squandered or lost.
Setting Up a Spendthrift Trust
Creating a spendthrift trust involves careful drafting to make sure the provisions comply with New Jersey law and achieve your goals. The process typically includes:
- Deciding what assets will be placed into the trust.
- Naming a reliable trustee.
- Determining the rules for distributions, such as regular payments, educational expenses, or health needs.
- Including the spendthrift clause to limit the beneficiary’s control and protect the assets.
Because the details matter, it is wise to work with an estate planning attorney to ensure the trust is structured correctly.
How Bozanian McGregor Can Help
At Bozanian McGregor, LLC, we understand the importance of protecting your family’s financial future. We will work with you to decide whether a spendthrift trust fits your estate plan, explain the options available, and draft clear provisions that reflect your goals. Our team will also advise you on trustee selection and help you integrate the trust with your broader estate planning documents.
Contact an Experienced Paramus Spendthrift Trust Attorney
If you are ready to explore whether a spendthrift trust is right for you, contact us today. We are here to provide the guidance you need to safeguard your assets and care for your loved ones.
Frequently Asked Questions About Spendthrift Trusts
Can a beneficiary demand early access to a spendthrift trust?
No. A spendthrift provision prevents the beneficiary from forcing distributions or transferring their interest in the trust. The trustee decides when and how distributions are made based on the terms of the trust.
Do spendthrift trusts protect against divorce settlements?
Generally, the assets in a spendthrift trust are shielded from claims in a divorce, but once funds are distributed to the beneficiary, they may become part of the marital estate. Each case is fact-specific, so it’s wise to discuss your situation with an attorney.
Can a spendthrift trust last for the beneficiary’s lifetime?
Yes. Many spendthrift trusts are designed to provide ongoing support throughout the beneficiary’s life. You can decide whether the trust should end at a certain age, continue for life, or even pass assets to future generations.