A spendthrift trust is a type of trust that is formed in order to allow the creator of the trust to have full discretion over how the funds of the trust are used by the beneficiary. The creator of the trust is usually referred to as the “trustor,” though may sometimes also be called the “grantor” or “settlor.” The person placed in charge of the trust fund and ensuring its assets are allocated properly is called the “trustee,” and the “beneficiary” refers to the person for which the trust was set up and who receives funds from it.
A spendthrift trust can be especially fitting if the beneficiary for the trust fund is for some reason unable to appropriately control and keep track of their own finances. Nevertheless, many trustors choose to include a spendthrift clause – the particular language allowing the trust to be treated legally as a spendthrift trust – in the wording of their document. This is in order to guarantee that interest is not attached to the assets in the trust before the beneficiary is able to actually receive them, an added advantage to creating this specific type of trust.
It is important to note that the precise legalities surrounding spendthrift trusts, as well as other types of trust funds, can vary by state. Delaware, Rhode Island, Missouri, Oklahoma, Utah, South Dakota, Nevada, and Alaska, for example, are eight states that allow the creators to be the beneficiaries of their own trusts (in other words, Nevada and Alaska permit individuals to set up spendthrift trusts for their own benefit). These types of trusts, usually deemed “self-settled spendthrift trusts,” are also sometimes called “Alaska Trusts” (see the Alaska USA Trust Company), as Alaska was the first state in the union to allow people to do this, starting in 1997.
You can read more about spendthrift trusts at Nolo.com, an informative Web site that provides simple definitions of legal terms and concepts, as well as commonly used legal forms, software, and search functions (which provide lists of lawyers by specialty and/or location).
