How a spendthrift trust protects financially irresponsible loved ones

Add a spendthrift provision to limit a beneficiary’s access to an inheritance.


Elissa Suh

Published January 14, 2020

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  • Spendthrift trusts can offer asset protection from a beneficiary’s creditor and limit how much the beneficiary receives

  • A spendthrift trust operates like a normal trust, but includes a spendthrift clause or spendthrift provision

  • The trustee is responsible for managing the trust funds and disbursing payments

As you get older and start planning for the future, you may start to think about who should inherit your belongings when you die. But what if the family member or loved one you want to pass an inheritance to isn’t so good at managing their finances? If you’re afraid that a future heir will squander away the money you diligently saved for them, you might consider opening a spendthrift trust. This type of trust protects a financially irresponsible beneficiary by limiting their access to the trust funds. With a spendthrift trust, you include a provision that dictates how much and even when a beneficiary receives any payments from the trust. A trustee will be responsible for making these distributions and managing the trust according to your terms, making a spendthrift trust ideal if you have a financially risky beneficiary.

A spendthrift trust is just one of many different types of trusts and may be an important part of your estate plan.

In this article:

How a spendthrift trust works

A trust is a separate legal entity that holds different types of assets for the intended benefit and use of its heirs, called beneficiaries. The grantor or settlor is the person who creates the trust and puts assets into it.

The grantor (settlor) makes all the rules about the trust, which are contained in the trust document. If you open a spendthrift trust, instead of bequeathing a lump sum to your beneficiary, you will have the trust pay out the money incrementally. These terms are laid out specifically in a provision that limits how much and how often the beneficiary receives payments from the trust and in what circumstances. For example, does the trust make monthly payments to the beneficiary? Quarterly? Only on birthdays?


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To make sure the spendthrift clause is drafted in proper legal terms, you can seek the legal advice of a professional like an estate planning lawyer.

The grantor (settlor) also appoints a trustee to manage the trust. The trustee of a spendthrift trust is especially important because they are like a gatekeeper or middleman between the beneficiary and the trust property. If you open a trust during your lifetime (a living trust or inter vivos trust), then you can act as trustee. Just be sure to name a successor trustee to take over when you pass away who can continue managing the trust if you haven’t had the assets distributed already.

The benefit of establishing the spendthrift trust while you’re alive is that the assets are not subject to probate. If you have a spendthrift trust created upon your death through instructions in the will, then your beneficiaries must wait until the probate process is completed before they can receive any of the assets.

You can learn more about wills and trusts here. And if you don't have any children who make poor financial decisions, you'll probably benefit from a revocable trust, instead. Start your estate plan with the Policygenius app and get both a will and trust with the Plus package.

Revocable vs irrevocable trust

A spendthrift trust can be revocable or irrevocable in nature. A revocable trust is one that can be changed or modified by the grantor. On the other hand, an irrevocable spendthrift trust cannot be changed.

Example of a spendthrift trust

Let’s say you want to leave $1 million worth of assets for your son who is in college, but aren’t quite confident in his ability to manage his finances. You transfer the assets into a spendthrift trust and designate your son as the trust beneficiary, specifying that he receives only $1,000 a month on the first of every month, which increases annually on his birthday.

Additionally, you allow an estate planning attorney who you appointed as trustee to make extra payments to your son only in the case of a medical emergency and hardship and to disburse all remaining trust funds to your son when he turns 40.

Consider the spendthrift trust in following situations:

  • He overspends his monthly allowance for the week and wants to go on a vacation — He must wait until the next month to receive any money from the trust.
  • He runs out of money, but needs to pay for ankle surgery — The trustee can give him money because it falls in accordance with the trust terms.
  • He falls into credit card debt and faces debt collection — The millions in the trust are protected from the creditor’s claim.
  • He has a car accident and the other driver sues him — Assets in the trust are protected in the event of a lawsuit.
  • He buys a house but defaults on his mortgage payments — the lender cannot come after the remaining trust funds, which he hasn’t yet received.

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About the author

Personal Finance Editor

Elissa Suh

Personal Finance Editor

Elissa is a personal finance editor at Policygenius in New York City. She writes about estate planning, mortgages, and occasionally health insurance. In the past she has written about film and music.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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