Most well-drafted Trusts contain a spendthrift provision-also sometimes called a restraint on alienation provision. Such a provision sets forth special language preventing creditors from attaching or “taking away” the interest of a beneficiary named in a Trust. Florida law enforces spendthrift provisions so long as they apply to both voluntary and involuntary transfers.
Typical spendthrift language in a Trust would read like this:
No income or principal payable to or held for any beneficiary shall, while in the possession of the Trustee, be voluntarily or involuntarily alienated, disposed of, pledged, assigned, or encumbered in any manner other than by Trustee action authorized hereby. The Trustee is authorized to withhold any sums which would otherwise be payable to the beneficiary, to pay these sums directly for the benefit of the beneficiary, or to pay these sums to the spouse or lineal descendants of the beneficiary, in order to enforce the terms of this provision.
Spendthrift provisions prevent a creditor who is owed money by a beneficiary from forcing the Trustee to pay over the beneficiary’s share of the Trust. In essence, as long as the assets (whether cash or property) to be received are still held by the Trustee, they are out of reach of the creditor. The creditor cannot use legal processes to force the assets to be turned over to the creditor. Of course, once the assets are received by the beneficiary, then any assets received would be fair game.
Consider, for example, a situation where a Mom and Dad set up a Trust providing at their deaths for their two children, Sally and Bob, in equal shares, to be distributed over time. Bob was not financially responsible and owes a credit card company over $20,000. Mom and Dad die and their Trust leaves Sally and Bob $100,000 each. The credit card company contacts the Trustee and demands that $20,000 from Bob’s share be sent to satisfy his debt. The Trustee can simply refuse this demand and the credit card company cannot touch the money so long as it is in the Trust. However, if the Trustee distributes the money to Bob and he puts it in his own bank account, then the creditor can go after it. More than likely, this would not happen because Bob will either spend the money or will otherwise hold it so the creditor cannot reach it.
In Florida, there are some notable exceptions to the enforceability of a spendthrift provision. First, if there is an enforceable support order against the beneficiary-such as an order to pay child support-then the protection does not apply. Similarly, if monies are owed by the beneficiary to the State of Florida or to the United States government, then there’s no protection. So if Bob owed his ex-wife for child support or the IRS for taxes, he’d really be out of luck! But with the credit card company, his interest can be protected.