So-called "spendthrift" trusts are a centuries-old legal device with roots in English common law. In its purest application the principle is straightforward: when you establish a trust for the benefit of your children (or, for that matter, anyone else other than yourself) you ought to be able to restrict access to the money so that they can not dissipate it. That, in fact, is the literal meaning of "spendthrift," based on a now-archaic use of the word "thrift" to mean "wealth." A spendthrift is someone who would spend his or her wealth, and a trust designed to prevent that is therefore a spendthrift trust.

The original spendthrift trust, interestingly, developed not to protect against heirs with poor money management skills but as a "married woman’s" trust in the early 18th century. Since a married woman could not then own property in her own name, fathers were anxious to make certain that any assets they left to their daughters could be protected from the grasp of husbands and their creditors. From that initial concept it was a short step to protecting money left to a daughter, son or anyone else from creditors’ claims. 

The modern American law is evolving to deal with changes in how we view autonomy, wealth and control of one’s property. For instance, there are now exceptions to spendthrift limitations in many states for certain kinds of debts or liabilities. Arizona is typical in its approach, providing in Arizona Revised Statutes §14-7707 that a court may reach into a spendthrift trust to satisfy child support, spousal maintenance, taxes and other government liabilities, and a handful of other kinds of debts.

Virginia’s law is also similar, and that gave rise to an interesting question in the case of Bradford N. Worthington. Mr. Worthington was trustee of two related trusts established by his mother—one for his benefit, and one for his disabled brother Craig’s benefit. In short order after his mother’s death Bradford Worthington proceeded to loot his brother’s trust by investing in his own business; when the court intervened he had lost nearly $128,000 of his brother’s money.

Fortunately for Craig, Bradford had posted a surety bond large enough to pay back the money he had lost. The insurance company acknowledged the bond, took a judgment against Bradford Worthington and restored the money to Craig Worthington’s trust.

Then the bonding company turned to Bradford Worthington’s own trust (he was no longer trustee of either trust). Even though it included spendthrift language protecting it from his creditors, the bonding company argued that it should be available to satisfy this particular creditor, since the trust was so closely related to the money that Bradford had misused. The judge agreed and allowed the bonding company to seize Bradford Worthington’s trust account.

The Virginia Supreme Court reversed that holding. There is no exception to spendthrift rules for such a situation, said the state’s high court, and even though it might appeal to a sense of ultimate justice Bradford’s creditors can not seize his trust assets unless they fit within one of the exceptions. When Bradford and Craig’s mother established the trusts she directed that their creditors would not be able to compel payments from the trusts, and that remained true despite the seriousness of Bradford Worthington’s misdeeds. Jackson v. Fidelity and Deposit Company of Maryland, March 3, 2005.

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