How to Set Up a Spendthrift Trust in Arizona: Knowing the Requirements

If you want to protect assets while controlling how certain beneficiaries receive them, a spendthrift trust could be the right solution for you. This type of trust limits a beneficiary’s access to trust funds while shielding them from most creditors and preserving inherited wealth. Spendthrift trusts are often chosen if a trust-maker has concerns about a beneficiary’s spending habits but wants to provide ongoing support without depleting their assets.

In Arizona, a spendthrift trust must include a special provision to be enforceable and valid. Working with an experienced trust attorney can help you create a trust that meets your goals, complies with Arizona law, and safeguards assets while supporting beneficiaries who may need assistance managing finances.

Here’s how to set up a spendthrift trust in Arizona:

Draft a Legally Compliant Trust Document

The foundation of any trust lies in its governing document. This legal instrument must clearly identify the grantor (trust-maker), the trustee, the successor trustee, and the beneficiaries. It should also outline how the trustee will manage and distribute the beneficiary’s inheritance over time.

Arizona law requires that a spendthrift trust include a clear clause saying the beneficiary cannot give away, sell, or otherwise transfer their interest in the trust, and that creditors generally cannot take the trust assets before the trustee distributes them. Without a spendthrift clause in the legal document, the trust may fail to offer the intended protections. A trust lawyer can draft provisions that meet these statutory requirements while addressing the family’s specific concerns about the beneficiary’s financial habits or vulnerability to creditors.

The trust document should also specify the trustee’s powers and limitations. Depending on the grantor’s goals, the trustee may have broad discretion over distributions or may be required to follow a strict schedule. For example, a spendthrift trust might allow monthly payments for living expenses but restrict access to principal until the beneficiary reaches a certain age. These terms should be tailored to the beneficiary’s circumstances and the grantor’s intentions.

Include Spendthrift Provision

A valid spendthrift provision under Arizona law must clearly state that the beneficiary cannot transfer their interest and that creditors cannot reach trust assets before distribution. However, state law creates exceptions to this protection.

Even with a spendthrift clause in place, certain creditors may still attach distributions:

• Children of the beneficiary with court orders for support or maintenance
• Judgment creditors who provided services to protect the beneficiary’s trust interest
• Government entities with valid tax claims

The statute also notes that special needs trusts are exempt from some of these exceptions. An attorney can explain how these limitations may affect the trust’s effectiveness in specific situations.

Set Up a Trust Account

After executing the trust document, the trustee must establish a separate account at a financial institution. This account will hold the trust’s assets and allow the trustee to manage them independently from personal funds. Proper account setup maintains the legal distinction between the trust and the beneficiary’s personal property.

Fund the Spendthrift Trust

The grantor must transfer assets into the trust, which may include cash, securities, real estate, or other property. Each asset type may require specific documentation, such as deeds for real property or assignment forms for financial accounts.

Conduct Periodic Reviews for Legal Compliance

Trust management does not end at creation. Regular reviews help confirm that the trust continues to serve its intended purpose and complies with any changes in state law or family circumstances. An experienced attorney can assist with ongoing administration and any necessary modifications.

Get Help from a Knowledgeable Estate Planning Attorney in Arizona

If you have questions about how spendthrift trusts work, talking to an experienced attorney can help you understand the legal requirements and careful planning needed to create one. Pennington Law, PLLC can guide you on creating a trust that protects your assets while supporting loved ones from reckless spending. Contact us today for a free consultation.