Keeping Creditors at Bay with a Protective Provision in a Trust

One of the many advantages of establishing a revocable trust is the so-called “spendthrift provision” that operates to keep creditors at bay from the trust’s beneficiaries. It doesn’t matter if the beneficiary is a “spendthrift” or is the model of good financial management – all beneficiaries are protected. The only exception is that the trust creator can’t escape creditors by putting property into a trust for his or her own benefit.

In Minnesota, the spendthrift provision means that the beneficiaries’ trust assets can’t be accessed by creditors, bankruptcy trustees, or divorcing spouses. The protection lasts while the trust property remains in the trust. When income and/or principal are distributed to the beneficiary – typically over a period of time – the spendthrift protection ends regarding the amount disbursed.

Some states make exceptions to the protection of assets to allow for alimony and child support payments, but Minnesota does not. Exceptions are not made in Minnesota because Minnesota courts view the purpose of the spendthrift provision as protection of the intent of the trust’s creator rather than protection of the beneficiary’s assets.

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Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.

Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305  952-649-9771  www.bwittenburglaw.com  bonnie@bwittenburglaw.com