What is the primary purpose of a spendthrift trust in life insurance proceeds?

• A. Designed to protect insurance proceeds that haven't been paid to the beneficiary from creditors
• B. Designed to accelerate the distribution of the death benefit to creditors
• C. Designed to reduce the death benefit
• D. Designed to waive the beneficiary's rights to receive proceeds

Answer: (A)

The main idea here is protection and controlled access. A spendthrift trust places life insurance proceeds into a trust with a spendthrift clause that restricts the beneficiary’s ability to transfer or assign their right to receive distributions and generally shields the trust assets from most creditors. This setup keeps the funds available for the beneficiary over time and prevents a reckless spending spree or creditor claims from draining the proceeds all at once. So, the primary purpose is to protect the insurance proceeds from creditors and ensure they are managed for the beneficiary’s welfare under the trust terms.

It doesn’t speed up payments to creditors, reduce the death benefit, or waive the beneficiary’s rights to receive proceeds.