Estate-planning documents come in all shapes and sizes, but one tool stands out for its power to protect beneficiaries and preserve family wealth: the spendthrift clause. If you’re setting up a trust in South Carolina, here’s why including a spendthrift provision could be one of the best decisions you make for your loved ones.
What Is a Spendthrift Clause?
A spendthrift clause is a trust provision that limits a beneficiary’s ability to transfer, sell, or assign their interest in the trust, and shields trust assets from creditors of the beneficiary. In practice:
- Beneficiaries can’t voluntarily assign their future distributions to pay debts or obligations.
- Creditors can’t reach the trust’s principal or undistributed income—even if a court awards a judgment against the beneficiary.
South Carolina’s Legal Framework
Under South Carolina law (see South Carolina Code §62-7-709), a valid spendthrift provision executed by the settlor (the person establishing the trust) will be honored by the courts. Key points:
- Express Language Required: The trust document must clearly state the intent to impose spendthrift protection.
- Settlor’s Creditors Excluded: The settlor cannot shield assets from creditors of the person who creates the trust if they retain certain powers or benefits.
- Exceptions Remain: Spendthrift clauses do not block claims for child support, spousal support, or government claims (e.g., Medicaid recovery).
Top Benefits for Families
1. Protection from Beneficiary’s Creditors
Imagine a beneficiary facing medical bills, lawsuits, or bankruptcy. With a spendthrift clause in place, trust assets remain insulated—ensuring your legacy isn’t eroded by someone else’s claim.
2. Safeguarding Against Poor Financial Habits
Not every beneficiary is a prudent saver. A spendthrift trust can impose discretionary distributions, giving the trustee control over when and how much is distributed. This helps:
- Prevent beneficiaries from squandering their inheritance.
- Encourage responsible financial decisions over time.
3. Supporting Vulnerable Beneficiaries
For families with members who have special needs or addictions, a spendthrift trust can:
- Maintain eligibility for government benefits (e.g., Medicaid, Supplemental Security Income).
- Provide continued support without risk of outright gifts that might disqualify them from public assistance.
4. Preserving Multigenerational Wealth
By limiting access and imposing structured distributions, families can:
- Stretch resources across generations.
- Ensure grandchildren or more remote descendants receive meaningful benefits even decades down the road.
Practical Tips for South Carolina Trust Drafting
- Work with an Experienced Attorney: Trust and estate laws vary by state. South Carolina-specific nuances—like creditor exceptions—must be carefully navigated.
- Clarify Trustee Powers: Specify how and when the trustee can distribute funds (e.g., health, education, maintenance, support).
- Include “Sprinkling” Provisions: Allow the trustee to allocate distributions among multiple beneficiaries to maximize protection.
- Review Periodically: Laws and family circumstances change. Periodic trust reviews ensure the document remains effective and aligned with your goals.
Conclusion
A spendthrift clause isn’t just fine print—it’s a powerful shield that can protect your family’s inheritance from outside threats, poor financial choices, and unintended disqualification from vital benefits. In South Carolina, where trust law upholds clear spendthrift intentions, including this provision ensures that your hard-earned assets serve their intended purpose: supporting and empowering your loved ones today—and for generations to come. Consult a South Carolina estate-planning attorney today to craft a trust that reflects your wishes—and keeps your legacy secure.