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 North Dakota, 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 North Dakota law, specifically North Dakota Century Code (NDCC) 59-12-08, a spendthrift provision is valid and enforceable. This provision restricts the voluntary or involuntary transfer of a beneficiary's interest in the trust, thereby preventing creditors from claiming assets to satisfy the beneficiary's debts, except in certain circumstances such as a claim by a child, spouse, or the government. Additionally, the beneficiary cannot use their interest in the trust as collateral for a loan. The spendthrift trust is designed to ensure that the trust assets are used as intended by the grantor, which is to provide for the beneficiary in a controlled manner over time, rather than being dissipated quickly by the beneficiary or seized by creditors.