Spendthrift Trust Provisions In Arizona
In Arizona, a spendthrift provision in a trust "is valid only if it restrains either voluntary or involuntary transfer of a beneficiary's interest." A.R.S. 14-10502(A).
The Restatement suggests that a spendthrift provision restraining either the voluntary or involuntary transfer of the beneficiary's interest, but not both, is invalid. Restatement (Second) of Trusts 152(1) (1959).
This concept was further expanded in the Restatement (Third) of Trusts, which states that "for reasons of policy, a spendthrift restraint that seeks only to prevent creditors from reaching the beneficiary's interests, while allowing the beneficiary to transfer the interest, is invalid." Restatement (Third) of Trusts 58 cmt. b(2) (2003).
And "a restraint only on voluntary transfer does not protect the interests from creditors and is thus insufficiently effective as a practical matter to justify a departure from the law's general policy against restraints on alienation." Id.
But we are not faced with that situation here because this spendthrift provision prohibits both.
No specific language is necessary to create a spendthrift trust, so long as its terms manifest an intention to create such a trust. 14-10502(B); Restatement (Second) of Trusts 152 cmt. c (1959) (hereinafter "Restatement").
"'The purpose of a spendthrift trust is to protect the beneficiary from himself and his creditors.'" Birdsell v. Coumbe (In re Coumbe), 304 B.R. 378, 382 (B.A.P. 9th Cir. 2003), quoting Richardson v. McCullough (In re McCullough), 259 B.R. 509, 517 (Bankr. D.R.I. 2001); see also George G. Bogert & George T. Bogert, the Law of Trusts and Trustees 222 (rev. 2d ed. 1980) (spendthrift provisions protect against creditors and "incompetence, imprudence, or misfortune" of beneficiaries).
And although a trustee may choose to honor an assignment made in violation of a spendthrift clause, the beneficiary retains the ability to cease all future payments that would be made pursuant to that assignment because "a valid spendthrift provision makes it impossible for a beneficiary to make a legally binding transfer." Unif. Trust Code 502 cmt. (2000); Restatement 152 cmt. i.