A spendthrift trust is a powerful estate planning tool that can help safeguard inheritances for beneficiaries who may be prone to poor financial decisions.
Whether due to immaturity, addiction, or other personal struggles, some beneficiaries may not have the capacity to manage a significant inheritance responsibly. Rather than disinheriting them, a spendthrift trust allows you to provide support while protecting assets from being squandered or claimed by creditors.
Below is an overview of what we will cover in this article:
What is a Spendthrift Trust?
A spendthrift trust is a type of trust designed to protect assets from being misused by the beneficiary or claimed by their creditors. It prevents the beneficiary from selling, transferring, or otherwise giving away their interest in the trust. This legal structure keeps trust assets safe from creditors as long as they remain in the trust.
How Does a Spendthrift Trust Work
Rather than distributing property outright, the creator of the trust (the settlor) appoints a trustee to manage trust assets for the beneficiary. The beneficiary’s creditors can reach funds the trustee distributes to the beneficiary. But with few exceptions, creditors cannot compel the trustee to pay outstanding claims from assets that remain in the trust.
How Does One Create a Spendthrift Trust in Texas?
Creating a spendthrift trust is easy. The Texas Estates Code only requires language showing that the settlor of the trust intends for it qualify as a spendthrift trust. Simply saying “this is a spendthrift trust” is sufficient.
Does the Beneficiary have to be a Spendthrift?
No. You do not have to prove that the beneficiary is irresponsible to create a spendthrift trust. You can create one for even a responsible adult beneficiary!
In fact, you can allow the beneficiary to eventually serve as their own trustee, either immediately or upon reaching a certain age or level of maturity, if the beneficiary is responsible. Because of the added layer of protection, most trusts today include such provisions by default.
Sounds Great! Can I Create One for Myself?
All of us would like to protect our assets from attachment by creditors; however, the general rule in Texas is that you cannot create an asset protection trust for your own benefit. Texas considers self-settled spendthrift trusts against public policy. Although adding a spendthrift provision will not invalidate a trust you create for yourself, it also will not protect the trust assets from creditors.
However, recent updates to the Texas Property Code may have created a potential workaround. For more information read: Can I Create an Asset Protection Trust for Myself in Texas?
Is a Spendthrift Trust Right for Your Family?
An experienced Texas estate planning attorney can help you design a plan that protects your beneficiary from poor decisions and creditor claims. If you have a loved one who struggles with personal or financial responsibility—or simply want to give your adult beneficiaries an added layer of asset protection—a spendthrift trust can offer peace of mind.
This article was originally published on November 28, 2012 and Updated on April 8, 2025.
