Spendthrift Trusts and Creditor Protection in California

A spendthrift trust doesn’t stop a beneficiary from getting into debt. It stops that beneficiary’s creditors from reaching into the trust to collect it. That distinction is the whole point of the tool, and it’s worth understanding exactly where the protection starts and where it stops, because the gaps are where families get burned.

What actually makes a trust a spendthrift trust

Under California Probate Code section 15300, a beneficiary’s interest in a trust can’t be reached by creditors, or transferred by the beneficiary, before the trustee actually distributes the income or principal, as long as the trust contains a valid restraint on that transfer. Section 15301 extends similar protection to principal. In plain terms: if the trust instrument says the beneficiary can’t sign over or borrow against their future interest, most creditors can’t force that transfer either.

This is why parents and grandparents often leave money to a child or grandchild in trust rather than outright, especially when that beneficiary has creditor exposure, a pending divorce, a history of poor money management, or a profession, doctor, business owner, that carries lawsuit risk. As long as the money stays in the trust and the trustee controls distributions, most ordinary creditors can’t touch it.

The protection depends on the trustee keeping control

Spendthrift protection only works if the trustee, not the beneficiary, decides when and how much gets distributed. A trust that gives the beneficiary the right to demand distributions on request, or that names the beneficiary as their own trustee with unrestricted access, undermines the protection regardless of what the document calls itself. Courts look at what power the beneficiary actually has, not just the label on the trust.

This is one of the most common drafting mistakes I see: a trust calls itself a spendthrift trust but then gives the beneficiary broad withdrawal rights that make the label meaningless. If you’re the successor trustee of a trust like this, understand that your discretion is what’s actually protecting the beneficiary’s inheritance. Exercising that discretion carelessly, or letting a beneficiary talk you into treating the trust like their personal checking account, is how the protection quietly disappears.

Exceptions: who can reach a spendthrift trust anyway

California law carves out specific creditors who can reach a beneficiary’s interest in a spendthrift trust even when the restraint is otherwise valid. Under Probate Code section 15305, a court can order the trustee to satisfy a child support or spousal support judgment out of the trust, up to the amount the trustee would otherwise be required or allowed to distribute to the beneficiary.

Other exceptions worth knowing about:

Restitution judgments in a criminal case, in some circumstances, under section 15305 and related provisions
Claims by a government agency for reimbursement, which becomes especially relevant in the Medi-Cal context, covered in our article on Medi-Cal recovery against a trust in California
Federal tax liens, which generally aren’t blocked by state law spendthrift provisions at all; see our piece on whether the IRS can put a lien on trust property for why a spendthrift clause doesn’t stop the IRS the way it stops an ordinary creditor

You can’t protect your own assets with your own spendthrift clause

A settlor who names themselves as a beneficiary of their own trust and tries to add spendthrift language to protect their own interest runs straight into Probate Code section 15304. That doesn’t work. You cannot shield your own assets from your own creditors by writing a spendthrift clause into a trust you created for yourself. This trips up business owners more than anyone else, usually after someone online told them it would work.

Once money is distributed, the shield is gone

Spendthrift protection covers the beneficiary’s interest while it sits in the trust. The moment the trustee hands over a distribution, the money is the beneficiary’s personal property, and any creditor who could reach the beneficiary’s other assets can reach that money too. A beneficiary who receives a large distribution and immediately faces a judgment creditor doesn’t get to put the money back into the trust and call it protected again.

This is part of why trustees should think carefully about distribution size and timing when a beneficiary has known creditor issues. Discretionary trusts, where the trustee has real authority to decide how much and when, give the trustee room to structure distributions in a way that’s actually useful to the beneficiary rather than simply handing an asset straight to a waiting creditor.

Spendthrift trusts and divorce

A spouse’s interest in a spendthrift trust set up by a parent is generally treated as separate property in a California divorce, since the beneficiary spouse didn’t create the trust and typically has no vested right to the assets until distribution. But distributions actually received during the marriage can become community property depending on how they’re used and titled afterward. If a family trust is part of a divorce, this line matters a great deal and it isn’t always obvious where it falls.

Setting one up correctly matters more than the label

A spendthrift provision is a few sentences in a trust document, but getting those sentences right, and making sure the rest of the trust doesn’t quietly undercut them, is where the protection actually lives or dies. Off-the-shelf language copied from a template doesn’t account for your beneficiary’s specific situation, your state’s exceptions, or how the trust interacts with the rest of your estate plan.

The honest caveat

A spendthrift trust is not a fortress. It stops ordinary creditors, and it does that well when it’s drafted and administered correctly. It does not stop child support or spousal support orders, it does not stop the IRS, it does not stop government reimbursement claims, and it does not survive the moment money actually reaches the beneficiary’s hands. Anyone counting on a spendthrift clause to solve a specific creditor problem, rather than provide general protection, needs individualized advice before assuming the plan will hold up against that particular creditor.

Talk to a real California estate attorney

If you’re building a trust to protect a beneficiary from creditors, or you’re a trustee trying to figure out how much discretion you actually have, I’ll walk through the trust language with you and tell you plainly whether it holds up.

Talk to Eric Ridley is a free 60-minute consultation by phone or Zoom, anywhere in California. Or call (805) 244-5291.

Frequently asked questions

What is a spendthrift trust and how does it protect a beneficiary from creditors?

A spendthrift trust contains language restraining a beneficiary from transferring or assigning their future interest, which under Probate Code sections 15300 and 15301 also stops most creditors from reaching that interest before the trustee actually distributes it. The protection depends on the trustee, not the beneficiary, controlling when and how much gets distributed.

What creditors can still reach a spendthrift trust in California?

Child support and spousal support judgments can reach a spendthrift trust under Probate Code section 15305, up to the amount the trustee would otherwise distribute. Government reimbursement claims, including Medi-Cal recovery, and federal tax liens generally aren’t blocked by spendthrift language either, regardless of how the trust is drafted.

Does a spendthrift clause still work if the beneficiary can demand distributions?

No. Spendthrift protection only holds if the trustee, not the beneficiary, decides when and how much gets distributed. A trust that gives the beneficiary the right to demand distributions on request, or names the beneficiary as their own trustee with unrestricted access, undermines the protection regardless of what the document calls itself.

What happens to spendthrift protection once the trustee distributes money?

It disappears. Spendthrift protection only covers the beneficiary’s interest while it sits inside the trust. The moment the trustee hands over a distribution, the money becomes the beneficiary’s personal property, and any creditor who could reach the beneficiary’s other assets can reach that money too.

Can I protect my own assets by naming myself a beneficiary of my own spendthrift trust?

No. Under Probate Code section 15304, a settlor who names themselves as a beneficiary of their own trust cannot use spendthrift language to shield their own assets from their own creditors. You cannot protect assets from your own creditors by writing a spendthrift clause into a trust you created for yourself.

This is general information about California law, not legal advice for your situation.

Spendthrift Trusts and Creditor Protection in California