NerdWallet
By Roberta Pescow
August 7th, 2025
Spendthrift trusts help ensure that beneficiaries can’t squander their inheritance. They can also serve to protect assets from creditors.
A spendthrift is a person who is a wasteful or reckless spender. A spendthrift trust is a trust that lets the beneficiary receive certain assets only if they meet specific conditions.
Rather than allowing the beneficiary to receive a lump sum, the trustee releases the money incrementally. The grantor (the person whose assets are funding the trust) sets the conditions under which the beneficiary can access the trust assets.
Spendthrift trusts can be especially useful if a beneficiary is:
- Employed in an industry where lawsuits are common (creditors typically can’t seize trust assets to pay settlements).
- Not mature enough to make wise spending choices.
- Impulsive with money.
- In heavy debt, or at risk of going into heavy debt.
- Easily fooled or defrauded.
- Suffering an active addiction that might cause excessive spending.
- A child with functional needs and eligible for SSI or Medicaid.
- Involved in or at risk of getting a divorce (courts may not consider trust assets as marital property when dividing assets).
You can set up a spendthrift trust yourself by using an online estate planning platform that can guide you step by step. However, you may prefer working directly with a financial advisor or an estate planning attorney because even minor errors could compromise or invalidate your trust. Also, states have different rules about when spendthrift trusts are allowed; which creditors can go after assets in spendthrift trusts; and what can happen to the disbursements.
