Exceptions to Trust Spendthrift Clauses
A spendthrift provision in a trust generally prohibts a creditor from trying to collect a debt of a beneficiary by seizing the beneficiary’s interest in a trust to satisfy the debt. These types of clauses are commonly included in trusts because the trust-creator (i.e., “settlor”) wants the trust money and assets to be used for the benefit of the beneficiaries, not some third-party creditors of the settlor or beneficiaires. While these are generally valid provisions in Missouri, there are numerous statutory exceptions.
First, during the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor’s creditors. Section 465.505.1, RSMo. Second, with respect to an irrevocable trust, there are exceptions either (a) when the conveyance was fraudulent as to creditors under the maning of Chapter 428, RSMo, or (b) the settlor was the sole beneficiary of the income/principal of the trust or retained the power to amend the trust, or (c) the settlor was one of a class of beneficiaries and retained a right to receive a specific portion of the income or principal of the trust that was determinable solely from the provisions of the trust instrument. Id.
These first two statutory exceptions are when the debt/liability is owed by the settlor, who is the creator of the trust. There are separate statutory exceptions when a creditor of a beneficiary is trying to collect trust assets:
“[A] beneficiary’s child, spouse, or former spouse who has a judgment against the beneficiary for support or maintenance, or a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust, may obtain from a court an order attaching present or future trust income.” Section 4565-503.2, RSMo.
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