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Friday, May 21, 2021

The Benefits of a Spendthrift Trust

In a family and among loved ones, there can be a range of concerns and issues. Perhaps you have a grandchild who is not good with money. Maybe you have a sibling struggling with an addiction. While we all have our concerns and struggles, you may still want to provide your loved one with an inheritance, but worry about where the proceeds will go to. Will the inheritance be immediately wasted away? Will creditors eat up all of it? Will it go towards perpetuating an addiction? Fortunately, a spendthrift trust may solve the dilemma you face.

The Benefits of a Spendthrift Trust

A spendthrift trust, like other trust types, is funded by the trust grantor or settlor and managed by a trustee for the benefit of the designated trust beneficiaries. It is a trust that is popular in estate planning and asset protection. This is because it has many potential benefits and uses. You see, the beneficiary of a spendthrift trust cannot access the trust principal. The beneficiary cannot transfer, assign, or sell his or her interest in the trust to creditors or other parties.

The trustee makes distributions to the trust according to the terms set forth in the trust document. The terms for such distributions can greatly vary and be extremely specific. The trust settlor may have directed that funds only be distributed if the beneficiary goes to college and, even then, trust distributions may only go towards in-kind educational expenses. You see, the terms of the trust can help you see your goals for a loved one realized even after you are gone.

The restrictive terms of a spendthrift trust, as well as the beneficiary’s inability to access the trust principal, means that it can be a great way to protect the assets held in the trust from a beneficiary’s creditors and from poor spending habits of the beneficiary himself or herself. Be mindful of the fact that, in some instances, the spouse of a loved one may eventually turn into a creditor in the event of divorce. You may want to establish a spendthrift trust for a loved one in a rocky marriage or who is married to a person you distrust. Other ways a person may have claims made against his or her property include lawsuits, alimony, and other unpaid debts. A spendthrift trust can protect against any such claims.

Perhaps you have a loved one who may not have gotten to the point where he or she struggles with creditors but has poor money management skills. A spendthrift trust can avoid having to give an outright, lump-sum inheritance to him or her. Instead, the trust principal can be distributed over a period of time and, should you wish, under certain circumstances.

Another advantage of a spendthrift trust, which is one also shared by other trusts, is that there is more privacy in passing along an inheritance via trust rather than through a will. Trust assets avoid the public probate process. This means the inheritance you leave through a trust will stay as confidential as you wish.

Estate Planning Attorney

To learn more about spendthrift trust and other valuable estate planning tools, talk to the knowledgeable team at Monk Law. Contact Monk Law today.


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