A spendthrift trust is a trust in which the person who makes the trust and places property or assets in it (the grantor, settlor, or trustor) includes a provision that prohibits the beneficiary’s interest in the trust from being assigned to another person or entity—whether as a gift or as collateral for a loan or debt—and prevents a creditor from reaching or attaching the beneficiary’s interest in the trust.

A spendthrift is a person who spends money wastefully or foolishly and a spendthrift provision in a trust (a spendthrift trust) is designed to preserve the trust’s assets and protect the beneficiary from the beneficiary’s spendthrift ways.

In Kentucky, a spendthrift trust is a legal tool used to protect a beneficiary's interest in a trust from creditors and from the beneficiary's own potentially imprudent spending. Under Kentucky law, specifically KRS 386.450, a spendthrift provision is valid and enforceable. This provision prevents the beneficiary from transferring their interest in the trust, either voluntarily or involuntarily, thus safeguarding the assets from claims by creditors or from being used as collateral. It also means that creditors cannot reach the trust assets to satisfy the debts of the beneficiary until the money is actually distributed to them. However, there are exceptions to this protection, such as claims for child support, alimony, or services provided to protect the beneficiary's interest in the trust. It's important to note that while spendthrift trusts offer significant protection for the trust assets, they must be properly structured and operated in accordance with Kentucky law and the specific terms of the trust agreement to ensure their effectiveness.