Spendthrift trusts and bankruptcy


Is it possible for your parents to leave you a ton of money in a trust and make it so that money is protected?  Even from bankruptcy?

The simple answer is yes.  In fact the procedure is relatively simple to do.  All your parents would have to do is attach a sentence or two to the trust saying the trust beneficiaries (you) can not sell your assign your interest in the trust.  Voilà your parents just created something called a spendthrift trust and have protected the trust’s assets from the claims of your creditors.

Even if you file a bankruptcy, the bankruptcy code says that those trust assets can’t be taken away in the bankruptcy.  But there is a really big catch, you have to tell someone that the trust assets have that spendthrift protection.  Why do I bring that up?  In a recent case, the individual going bankrupt could have kept millions of dollars in a trust, except for one tiny detail.  They never told anyone the trust was a spendthrift trust.  Because they never told anyone, the Bankruptcy Appellate Panel refused to consider the spendthrift protection and her creditors were awarded everything.

Here’s some free advice.  If you’ve got a few hundred thousand or more in assets, in a trust, or in an expected inheritance, hire an attorney to help you out.  It appears this person didn’t until the last moment, and because of that they are a few million poorer.