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NC and SC Estate Planning and Elder Law Firm

Thursday, May 11, 2017

What is a Spendthrift Trust?

One goal of estate planning is to provide for our loved ones when we are no longer around. At times, however, some beneficiaries may irresponsible or have other issues that could lead them to squander an inheritance. In these situations, it is possible to leave assets to a troubled heir by creating a spendthrift trust. In short, the objective is to limit a beneficiary's access to trust property in order to protect it from him or herself, or creditors.

The trust is set up so that assets or funds are not provided directly to the beneficiary. Instead, the person making the trust (the grantor) designates a trustee to manage the trust and provide regular payments to, or buy goods and services for, the beneficiary. Spendthrift trusts are well suited for those who (1) don't know how to handle money, (2) have drug, alcohol or gambling problems, (3) are frequently delinquent with debts, or (4) are susceptible to being manipulated.

What is the role of the trustee?

The trustee is charged with managing the trust and protecting the assets from being misused by the beneficiary. For this reason , the trustee must be able to manage the trust in a way that preserves the value of the  assets while simultaneously providing for the beneficiary.

In a properly designed spendthrift trust, the trustee will have the power to make set payments to the beneficiary on a regular basis. In addition, the trustee may also decide to withhold payments under certain circumstances, particularly if the beneficiary gambles, gets into debt or becomes entangled in a misguided relationship. Of course, the onus would be on the trustee to monitor the behavior of the beneficiary, which could prove to be burdensome.

On the other hand, the grantor could specify conditions under which payments should be made. For example, the beneficiary could be required to undergo drug or alcohol testing before a payment is released. Another option is to instruct payments to be made directly to a landlord or a creditor rather than to the beneficiary. In some cases, a trust can even include incentives for a beneficiary to receive any proceeds, such as graduating from college or finding employment.

The Takeaway

Ultimately, a well thought out spendthrift trust will consider the unique circumstances of all the parties.

The grantor should select a trustee who is competent and honest and will act in the best interests of the beneficiary. If your are considering providing for a troubled heir, an experienced trusts and  estate planning attorney can help you create a spendthrift trust that will preserve your assets, provide for a loved one, and put your mind at ease.


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