After we die, we hope that our legacy lives on. This can mean a lot of different things, but many like to leave something to help support their loved ones after they are gone. The thought of leaving a lump sum inheritance to your children or other loved ones, however, can be uncomfortable.
After all, such a windfall can be difficult to manage even for those of us with strong money management skills and spending restraint. What will happen to your legacy in the hands of your heirs that struggle with financial immaturity? Or are in a relationship where they have relinquished any control over their financial matters? Or maybe they struggle with addiction issues? Or perhaps they are simply too young to effectively manage a lump sum inheritance? If your heirs struggle with their financial matters, should you leave them an inheritance and risk them spending it quickly away?
Well, a spendthrift trust can allow you to provide your heirs with an inheritance, but protect it from creditors and poor spending habits.
Spendthrift Trusts and Protecting Your Legacy
A spendthrift trust is established like other trusts in that once it is established, assets are transferred into the trust and a trustee is appointed to manage the trust and control trust distributions according to the terms set forth in the trust document. What makes a spendthrift trust special is held within the terms of the trust.
The creator of the trust includes specific language regarding when qualified distributions can be made from the trust, under what circumstance trust distributions can be made, how much can be distributed, and how distributions can be made. Essentially, the trustee has the critical role of gatekeeping the legacy held within the trust. The trustee must only make distributions according to the terms of the trust. As such, beneficiaries of the trust are prevented from quickly spending away the inheritance that is held within the trust.
The Responsibility of a Trustee
The trustee of a spendthrift trust is a role of great responsibility. You will want to take great care in selecting the trustee of your spendthrift trust. They should be organized, responsible, and able to apply the terms set forth in the trust document.
Also consider the trustee’s relationship with the trust beneficiaries.
- Are they friends or family members?
- Will the trustee be able to separate their relationship with the beneficiaries from their task of managing the trust in accordance with trust terms?
- Some may even elect to appoint a professional trustee such as a firm, bank, or investment company to help ensure that there is minimal risk of impropriety and that the trust is properly managed.
In addition to protecting the assets held in the trust from the beneficiaries themselves, a spendthrift trust also provides a layer of protection against creditors and potential creditors of the beneficiaries. The assets held in trust are owned by the trust and not the beneficiaries. As such, creditors of the beneficiary cannot go after the assets held within the trust.
Contact an Estate Planning Attorney Today
Talk to the team at Monk Law about all of the estate planning options you have to help further and protect your goals for your loved ones and yourself. Contact Monk Law today.