Wills & Trusts — New York
A spendthrift provision in your New York trust protects a beneficiary's inheritance from their creditors, lawsuits, and financial missteps. Russel Morgan, Esq. drafts comprehensive spendthrift trust plans for families throughout all five NYC boroughs.
New York EPTL §7-1.5
One of the most powerful — and frequently overlooked — features of a well-drafted New York trust is the spendthrift provision. Under EPTL §7-1.5, a trust can include language that prevents a beneficiary from voluntarily assigning, pledging, or transferring their interest in the trust before a distribution is made, and that also bars the beneficiary's creditors from attaching or garnishing trust assets while they remain in the trust. In effect, a spendthrift provision creates a protective bubble around the trust assets: they are available to benefit the beneficiary at the trustee's discretion, but they are not available to satisfy the beneficiary's debts, judgments, or other financial obligations.
For New York City families with multiple generations of wealth, spendthrift trusts are an essential component of comprehensive estate planning. A parent may love all their children equally but recognize that one child has made poor financial decisions, is in a troubled marriage, or works in a high-risk profession where lawsuits and judgments are a real possibility. A properly drafted spendthrift trust does not mean disinheriting that child — it means providing for them in a protected, structured way that ensures the inheritance is actually used for their benefit rather than intercepted by creditors or consumed by a divorce proceeding.
At Morgan Legal Group, Russel Morgan, Esq. includes spendthrift provisions as a standard feature of every discretionary trust we draft — whether a revocable living trust, an irrevocable trust, a special needs trust, or a testamentary trust embedded in a will. We also advise on the important exceptions and limitations under New York law, including the rule that a self-settled trust — a trust funded by the beneficiary themselves — cannot have a valid spendthrift provision under New York law, distinguishing New York from a small number of domestic asset protection trust states. For clients seeking to protect their own assets from their own creditors, different planning strategies apply, which we discuss at consultation.
Essential Knowledge
A creditor holding a judgment against a trust beneficiary cannot reach undistributed trust assets. The creditor must wait until a distribution is actually made to the beneficiary and then attempt to intercept that payment — a far less certain remedy than attaching trust assets directly.
A spendthrift provision prevents the beneficiary from pledging their trust interest as collateral for a loan or selling their interest to a third party. This is particularly important for beneficiaries facing financial pressure who might otherwise be tempted to monetize their future inheritance prematurely.
Under New York law, a spendthrift restraint must be imposed by the grantor — the person creating the trust — not by the beneficiary. A person cannot create a spendthrift trust for their own benefit to shelter assets from their own creditors under current New York law.
New York courts recognize certain exceptions where a creditor can reach spendthrift trust assets: child support and spousal maintenance obligations, state and federal tax claims, and in some cases, services provided for the benefit of the beneficiary in reliance on their trust interest.
A spendthrift provision is most effective when paired with truly discretionary distribution standards — giving the trustee authority to withhold distributions when a beneficiary's interest might be attached. A trust requiring mandatory distributions loses much of the spendthrift protection.
Inherited trust assets, protected by a spendthrift provision and kept separate from marital property, are generally treated as separate property in a New York divorce. However, distributions already made and co-mingled with marital funds lose their separate property character.
Frequently Asked Questions
A spendthrift trust is a trust that contains a spendthrift provision — a clause that restricts the beneficiary's ability to voluntarily assign or transfer their interest in the trust, and also restricts creditors of the beneficiary from attaching or reaching trust assets before those assets are actually distributed to the beneficiary. Under New York EPTL §7-1.5, a spendthrift restraint on a beneficial interest in trust is valid and enforceable, meaning that a creditor holding a judgment against a trust beneficiary generally cannot levy on trust assets while they remain in the trust.
The spendthrift provision does not make the trust completely bulletproof — New York law recognizes certain exceptions, including claims by the beneficiary's support-entitled dependents, claims by the government for taxes, and claims arising from a fraud perpetrated by the beneficiary through use of trust assets. But for ordinary creditors — including judgment creditors, credit card companies, medical debt holders, and former business partners — the spendthrift restraint provides powerful protection that can preserve a trust inheritance for its intended purpose even if the beneficiary faces serious financial difficulties. Russel Morgan, Esq. includes spendthrift provisions as a standard element of every discretionary trust document prepared by Morgan Legal Group.
Any trust grantor who is concerned about a beneficiary's ability to manage money wisely — or who wants to protect a beneficiary's inheritance from external financial threats — should consider including a spendthrift provision. Common scenarios include: a parent whose adult child has a history of financial irresponsibility, excessive debt, or addiction; a grandparent who wants to ensure that an inheritance supports a grandchild's education and wellbeing; a business owner who wants to protect a child's inheritance from business creditors; and a parent concerned that a child is in an unstable marriage.
New York law permits a grantor to create a very high degree of protection through a combination of spendthrift provisions, discretionary distribution standards, and trustee authority to withhold distributions when circumstances warrant. The key requirement is that the spendthrift restraint be imposed by the grantor — not by the beneficiary on themselves — and that it be part of an otherwise valid trust document. Morgan Legal Group regularly counsels New York City clients on the full range of spendthrift and asset protection trust options to find the right approach for each family's specific concerns.
Under New York's Domestic Relations Law, inherited assets — including trust distributions — are generally treated as separate property in a divorce proceeding, not subject to equitable distribution between the spouses, provided they have not been co-mingled with marital assets. However, there is an important distinction between trust assets that remain in the trust and distributions that have already been made to the beneficiary and deposited in a joint account or used to purchase marital property. A trust distribution that is kept separate and not co-mingled with marital funds generally retains its separate property character.
A spendthrift provision reinforces this protection at the trust level by preventing the beneficiary from voluntarily assigning their trust interest and making it harder for a divorcing spouse to claim a right to reach undistributed assets. For maximum divorce protection, the spendthrift trust should be combined with a truly discretionary distribution standard — giving the trustee broad authority to withhold distributions during a period of marital instability — so that undistributed trust assets are further insulated from claims in a divorce proceeding. Russel Morgan, Esq. advises on optimal trust structuring for clients whose children or other beneficiaries are in or approaching marriages that may be at risk.
A spendthrift provision and a discretionary distribution standard are two separate but complementary trust features. A spendthrift provision addresses who can reach trust assets from the outside — it prevents the beneficiary's creditors from attaching undistributed trust assets. A discretionary distribution standard addresses how distributions are made from the inside — it gives the trustee discretion to decide when to make distributions, in what amount, and for what purposes, rather than requiring mandatory distributions on a fixed schedule.
Together, these two features create the strongest combination of beneficiary protection under New York law. A trust that has a spendthrift provision but requires mandatory monthly distributions still exposes each distribution to creditor interception immediately upon payment. A trust with a discretionary distribution standard but no spendthrift provision may allow creditors to reach trust assets in certain circumstances. When both features are present, the trustee has maximum flexibility to protect trust assets from being distributed to or intercepted by a beneficiary's creditors, while still providing for the beneficiary's genuine needs. Russel Morgan, Esq. drafts both features into every protective trust prepared by Morgan Legal Group for New York families.
Protect What You've Built
Contact Russel Morgan, Esq. today to discuss whether a spendthrift trust is right for your estate plan. Serving all five New York City boroughs from 15 Maiden Ln #905, Manhattan.