There are so many different kinds of people in our lives that we care about and want to provide for. Do you have a loved one with whom you want to provide financial support, but worry about where this support will end up? From creditor issues to poor money management skills, it can be stressful to go back and forth on whether or not you want to risk giving assets to someone who may so easily lose everything. Here, we discuss the spendthrift trust, the possible solution to this problem you may have been grappling with.
What is a Spendthrift Trust?
To establish a spendthrift trust, like other trusts, you transfer assets into the trust to be managed by a trustee for the benefit of the trust beneficiaries. The purpose of a spendthrift trust is to shield property intended for the benefit of the beneficiaries from the creditors or poor spending habits of a beneficiary. The beneficiary is restricted from being able to freely access the principal of the trust and the trust acts as a shield from the creditors of trust beneficiary.
Do you worry about the spending habits of a loved one? Do you worry about creditors taking all of that which you want to provide for them? It can also be important to remember that a creditor may include the former spouse of a person. This means that, should you be worried about the stability of a loved one’s marriage or do not necessarily like the spouse of a loved one, a spendthrift trust might also be a good idea in this kind of scenario.
How does a spendthrift trust actually work? Well, the trust guards against a beneficiary squandering the trust principal by restricting access. The beneficiary cannot directly and freely access the trust principal, nor can a beneficiary promise that which is held in the trust to someone else. Due to the fact that the beneficiary cannot access the trust principal, it will be inaccessible to creditors as well.
Instead of free access to trust principal, the beneficiary will receive trust beneficiaries through the trustee. Instead of a lump-sum benefit, the trust distributions can be made in regular, spaced-out intervals. The trust document could also direct the trustee to not distribute funds directly to the beneficiary but instead purchase goods or services for the beneficiary. You can place conditions on when and how distributions from the trust are made. If you only want distributions to occur when the beneficiary has enrolled in college, you can make this a condition of trust distributions.
As you can see, the trustee plays a central role in the administration of a spendthrift trust. He or she is tasked with following specific instructions held in the trust document. Complying with these instructions is critical to the spendthrift trust accomplishing your intended goals.
Estate Planning Attorney
Do you have a loved one with poor spending habits? Do you have a loved one struggling with an addiction? Do you have a loved one with creditor problems? Talk to the dedicated estate planning team at Monk Law about how a spendthrift trust might be a good fit for you and your family. Contact Monk Law today.