spendthrift clause

spendthrift clause
A provision in a trust that restricts a beneficiary's ability to transfer rights to future payments of income or capital under the trust to a third party. In effect, the clause prevents "spendthrift" beneficiaries from squandering an inheritance before they receive it and it also protects a beneficiary's inheritance from creditors.
Category: Wills, Trusts & Estates → Living Trusts & Avoiding Probate
Category: Wills, Trusts & Estates → Wills

Nolo’s Plain-English Law Dictionary. . 2009.

spendthrift clause
n.
   a provision in a trust or will that states that if a prospective beneficiary has pledged to turn over a gift he/she hopes to receive to a third party, the trustee or executor shall not honor such a pledge. The purpose is to prevent a "spendthrift" beneficiary from using a potential gift as security for credit on a speculative investment. Example: Junior Jones is talked into an investment in Florida swampland but has no money in hand to pay for it. So he tells the developer he will soon receive $50,000 from his aunt's trust and signs an assignment of the expected $50,000 to the developer. When the aunt dies, the trustee must ignore the developer's demand for payment based on the written assignment but may pay the funds directly to Junior.
   See also: trust, will

Law dictionary. . 2013.

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