Spendthrift Trust: What Is It and What Are the Benefits?
In Florida, anyone can create a revocable or irrevocable trust to maintain control over the distribution of assets, minimize estate taxes, avoid probate, and provide protection for beneficiaries. One of the many types of protections offered by trusts is the so-called “spendthrift trust.”
What Is a Spendthrift Trust?
A “spendthrift trust” prevents creditors of a beneficiary from accessing assets held in the trust before they are distributed to the beneficiary. Section 736.0103, Florida Statutes, defines “spendthrift provision” as a term that restrains the transfer of a beneficiary’s interest, either voluntarily and involuntarily.
In Florida, a spendthrift trust allows the grantor to provide support for a designated beneficiary as well as restrict the beneficiary’s ability to waste or sell assets held in the trust. Thus, there are two benefits of creating a spendthrift trust:
- It protects the grantor and beneficiary from wasting or selling the assets; and
- It protects the assets from any creditors of the beneficiary.
How to Create a Spendthrift Trust in Florida?
The process of creating a spendthrift trust does not differ from the process of creating any other trust. However, the only difference is that your trust will need to contain a “spendthrift provision,” in which you describe how the trustee would control the beneficiary’s access to the assets held in the trust.
In estate planning, spendthrift provisions are valid and enforceable in Florida only when they restrain both the voluntary and involuntary transfer of funds or assets held in the trust. They typically contain language that the beneficiary can assign or alienate their interest to another person or entity.
How Does a Spendthrift Provision Protect a Beneficiary from Creditors?
When a trust contains a spendthrift provision, it prevents creditors of a beneficiary who owes money from forcing the trustee to turn over the beneficiary’s interest in the trust. However, once the assets are distributed outright to the beneficiary, and the beneficiary receives them, they could be turned over to the creditors. For example: Parents set up a trust with a spendthrift provision so that their assets would be distributed to their children over time. One of the children owes $25,000 to a credit card company, while the trust leaves $50,000 to each child. After the parents die, the creditor contacts the trustee and forces them to turn over the debtor’s $25,000 to pay off the debt. However, since the trust contains a spendthrift provision, the trustee can refuse the creditor’s demand. However, once the assets are distributed outright to the children, the creditor will be able to attach to that asset.
However, there are some exceptions to the enforceability of spendthrift provisions in Florida:
- The spendthrift provision is not valid if there is an enforceable support order against the beneficiary (e.g., a child support order); and
- If the beneficiary owes money to the federal or state government, the spendthrift provision does not apply.
Consult with our St. Petersburg estate planning attorneys at Legacy Protection Lawyers, LLP, if you are considering creating a spendthrift trust. Our lawyers can help you create an estate plan that suits your needs. Call at 727-471-5868 for a case evaluation.