The benefits of a spendthrift trust in Arizona

On Behalf of | Jul 27, 2021 | Estate Planning |

A common estate planning question for wealthy Arizonans is how can the assets in the estate be protected from claims of creditors of the beneficiaries and how can the beneficiaries (or some of them) be prevented from squandering their inheritance. The answer to both questions is the same: use a spendthrift trust to limit both voluntary and involuntary transfers of estate assets.

The basics of a spendthrift trust

The enforceability of a spendthrift provision in a will is stated in Arizona statutes. In order to create a valid limitation on transfers of the beneficiary’s interest, the will must contain language that restrains both voluntary and involuntary transfers of the beneficiary’s interest in the estate. The restriction on voluntary transfers limits the beneficiary’s power to spend trust assets for his or her own benefit. The limit on involuntary transfers mean that creditors of the beneficiary cannot claim trust assets to satisfy a debt owed by the beneficiary. A spendthrift trust may have an express duration stated as a term of years, or it may expire when the beneficiary reaches a certain age or dies.

Exceptions to spendthrift trusts

Certain payments from the beneficiary’s interest are not subject to a spendthrift clause. Child support payments owed by the beneficiary may be subjected to a court order allowing the unpaid support claims paid out of trust assets (except out of a special needs trust). Claims of the United States and Arizona are likewise exempt from spendthrift provisions.

Setting up a spendthrift trust

Anyone interested in using the spendthrift trust to protect their children’s interests from claims of creditors or their own profligacy may wish to consult an experienced estate planning attorney for advice. A knowledgeable lawyer can evaluate the wisdom of a spendthrift trust, suggest other methods of protecting assets given to beneficiaries, and, if necessary, draft appropriate language for a will.