A spendthrift clause is a trust provision that bars a beneficiary from selling, pledging, or giving away a future interest in the trust and bars the beneficiary’s creditors from reaching that interest until the trustee actually makes a distribution.
In plain terms
It answers the question every wealthy parent eventually asks: what happens when the child with the trust fund signs a bad guarantee, loses a lawsuit, or is talked into borrowing against an inheritance that has not arrived. The clause makes the future interest legally untouchable — the beneficiary cannot hand it over and a creditor cannot seize it, because until the trustee writes a check the beneficiary owns an expectation rather than an asset. It is now near-universal boilerplate in professionally drafted US trusts, which is why most people who benefit from one have never read it.
How it works
The rule is a state-law creation. Under Section 502 of the Uniform Trust Code, a spendthrift provision is valid only if it restrains both voluntary and involuntary transfer — a clause that blocks creditors but lets the beneficiary assign the interest is void, because the point is to remove the interest from commerce entirely, not to give the beneficiary a shield to wield selectively. The UTC has been enacted in some 37 US jurisdictions, most recently Oklahoma in 2025; the remaining states reach broadly similar results through case law.
The protection is not absolute. UTC Section 503 lets three classes of claimant through anyway: a child, spouse, or former spouse holding a support or maintenance judgment; a judgment creditor who provided services protecting the beneficiary’s interest; and claims of the United States or a state. Section 505 closes the obvious loophole — a settlor cannot create a trust for their own benefit and spendthrift it against their own creditors, except in the handful of states that authorize a domestic asset protection trust.
Bankruptcy respects the clause. 11 U.S.C. § 541(c)(2) excludes a spendthrift interest from the bankruptcy estate, which is the single most consequential consequence of the drafting. But § 548(e), added in 2005, gives a trustee ten years to unwind a self-settled transfer made to hinder creditors.
The numbers
- UTC jurisdictions: roughly 37 US states and the District of Columbia, with Oklahoma enacting in 2025.
- Statutory exception creditors: three — support claimants, a creditor who protected the interest, and government claims.
- Bankruptcy lookback on self-settled transfers: 10 years, under 11 U.S.C. § 548(e).
- Protection after distribution: none. The clause governs the interest, not the cash.
- Typical drafting cost: effectively zero. It is a standard paragraph, not a separate structure.
What people get wrong
That it protects the money. It protects the interest, and those are different things. The instant the trustee makes a distribution, the funds are ordinary property in the beneficiary’s bank account and every creditor in line can attach them. This has a consequence almost nobody draws out: the real protection sits in the trustee’s discretion, not in the clause. A trust that must pay all income quarterly, spendthrift clause and all, hands a judgment creditor a predictable stream to garnish the moment each payment lands — while a purely discretionary trust with the identical clause offers nothing to wait for, because there is no payment the beneficiary can compel. Two documents with the same protective language can therefore produce opposite results, and the variable is the distribution standard.
Related
Read more: Legacy: Inheritance, Heirs, and Family Continuity · Trusts: How Wealth Is Held, Protected, and Passed On · Asset Protection: How the Wealthy Reduce Exposure to Risk
See also: Irrevocable trust · Dynasty trust · Trust protector · Domestic asset protection trust