“All happy families are alike; each unhappy family is unhappy in its own way.”

— Leo Tolstoy, Anna Karenina

Tolstoy’s famous opening reminds us that every family’s struggles are unique. Your family is no different. Perhaps you have a child who cannot manage money, a sibling with mounting debts, or a grandchild whose creditors are already circling. You want to provide for them — but you also know that leaving them an outright inheritance could mean handing it directly to their creditors before it ever does them any good.

A spendthrift trust, properly drafted, is the estate planning tool designed for exactly this situation. It allows you to leave a meaningful bequest to a financially vulnerable family member while building a legal wall between that inheritance and the beneficiary’s creditors. But the emphasis is on properly drafted. A trust that looks bullet-proof on paper but fails to address the legal theories creditors actually use is not bullet-proof at all.

Recent legal analysis by Indiana attorney Whitney L. Mosby, published in the Indiana Bar Association’s Res Gestae journal, identifies five legal theories creditors use to pierce trust protections. Understanding these vulnerabilities — and closing them in the trust document — is the difference between a trust that holds and one that doesn’t.

What is a spendthrift trust?

A spendthrift trust is an irrevocable trust containing a provision that prevents the beneficiary from voluntarily assigning their interest — and prevents creditors from attaching it before a distribution from the trust. The irrevocability is what gives the trust its protective power: by permanently relinquishing control, the testator or testatrix, or the person gifting the property during their lifetime, ensures the assets are no longer treated as the beneficiary’s property to be seized.

Under Indiana law, a properly structured spendthrift trust can shield a beneficiary’s interest from attachment, garnishment, and other creditor claims. The operative word is properly structured. Courts have found ways to pierce trusts that appear protective on their face. The five vulnerabilities below are the ones your trust must be drafted to address.

The five vulnerabilities — and how a bullet-proof trust addresses each one

Think of these as five locks on the door. Leave any one of them unlatched and a determined creditor may find a way through.

Vulnerability	What a bullet-proof trust does about it
1. Revocability	If the trust can be revoked, the beneficiary is treated as the owner and creditors can reach everything. Your trust must be irrevocable — period. This is non-negotiable for any meaningful creditor protection.
2. Self-settlement	Indiana law strips spendthrift protection when the beneficiary is also the person who created and funded the trust. Your trust must be created and funded by you — the testator or testatrix — not by the beneficiary themselves.  So, you should not give a gift to someone with instructions that the receiver will set up their own trust.
3. Dominion & control	Even with a valid spendthrift clause, courts will pierce a trust if the beneficiary effectively controls it — as co-trustee, or with the unchecked power to remove the trustee or with power of appointment – i.e., power to decide who gets the distributions. Your trust must appoint a genuinely independent trustee and restrict the beneficiary’s managerial role.
4. Alter ego	If the trustee acts as a rubber stamp — always doing what the beneficiary asks without independent judgment — a court may treat the trustee as the beneficiary’s alter ego. Your trustee must be someone who will exercise real, documented discretion.
5. Fraudulent transfer	Transfers made to shelter assets from known or foreseeable creditors can be unwound under Indiana’s Uniform Fraudulent Transfer Act. Timing matters: transfers made while insolvent or during pending litigation are vulnerable. Plan early, before creditor problems arise.

What a bullet-proof trust looks like in practice

Closing all five vulnerabilities requires careful, coordinated drafting. At a minimum, a well-structured testamentary spendthrift trust for a financially vulnerable beneficiary should include:

• An explicit, enforceable spendthrift clause that prohibits both voluntary assignment and involuntary attachment.
• The appointment of a genuinely independent, critical trustee — not the beneficiary, not a close friend or relative who will simply do what the beneficiary asks.
• Clear distribution standards governing when and how funds are released (such as for health, education, essential maintenance – to include, for examples, shelter, food, clothing, transportation), giving the trustee real discretionary authority rather than a mere formality.
• A prohibition on the beneficiary serving as trustee, co-trustee, or holding any power of appointment over trust assets.
• Restrictions preventing the beneficiary from directing, pledging, or assigning their interest in any form.
• Documentation requirements so the trustee’s decision-making process is recorded — protecting against later claims that the trustee was simply a rubber stamp.

The choice of trustee deserves special attention.  Courts look at the pattern of actual distributions — a trustee who consistently hands over funds at the beneficiary’s request, without independent review, may be found to have ceded effective control. A corporate or professional trustee, with no personal relationship to the beneficiary and a formal process for evaluating distribution requests, provides the strongest protection.  Corporate trustees, however, are more expensive than a  layman trustee.

Timing matters: plan before problems arise

The fraudulent transfer risk underscores a critical point: the time to create a spendthrift trust is before a beneficiary’s creditor problems become acute — not after. Transfers made while a debtor is insolvent, or shortly before or after incurring substantial debt, are vulnerable to attack regardless of how well the trust is otherwise structured. Estate planning is most effective when done proactively, as part of a thoughtful overall plan rather than as a response to a crisis.

A gift that endures

Tolstoy was right that every family’s unhappiness is its own. But estate planning does not have to be. A bullet-proof spendthrift trust, properly designed and drafted, gives you a reliable, time-tested tool to protect a vulnerable family member — whatever form their particular struggle takes.

It is not an act of distrust. It is an act of foresight — a way of ensuring that the inheritance you leave behind in fact reaches the person you love, and serves them well, rather than disappearing into the hands of creditors.

Schedule a Consultation with Our Estate Planning Group

Every family’s situation is different — and so is every trust. Drafting a spendthrift trust that will hold up against creditor challenges requires a careful analysis of your beneficiary’s circumstances, your estate, and the specific provisions needed to close the vulnerabilities identified in current Indiana case law.

The estate planning attorneys at Lorch, Naville & Ward, LLC are ready to help you build that protection. Contact us to schedule an appointment.

Disclaimer: This blog post is for general informational purposes only and does not constitute legal advice. Please consult an attorney regarding your specific circumstances.