Spendthrift Trusts: How to Save Beneficiaries from Themselves

Are you worried about leaving a loved one an inheritance because they can’t manage money? For example, if you left a large sum of money to your adult child upon your death, would their lack of judgment and personal struggles prevent them from spending it wisely?

If this sounds like you, do not fret. One of the most common scenarios that arises in estate planning is when someone wants to leave behind an inheritance for a loved one, but they also know that it would come at a great risk. Luckily, there is a practical estate planning solution: the spendthrift trust.

A spendthrift trust is a type of trust that allows an individual to leave a gift to someone who may be unable to manage money responsibly. Here’s a quick breakdown of how it works:

1. The original owner of the assets, known as the “trustor” or “grantor,” places their assets in a trust, and names a beneficiary or beneficiaries to receive the assets.
2. The trustor identifies a trustee. This is the person who is responsible for making sure that the trustor’s wishes are carried out according to their stated instructions. The trustee also acts as the intermediary between the trust and the beneficiary.
3. The trustor includes a specific spendthrift provision in the trust. This is the section in which the trustor describes how the trustee will control the beneficiary’s access to the funds. For example, rather than transferring assets to the beneficiary all at once, the trustor can have the trustee distribute funds on a schedule, or upon satisfaction of certain conditions. The trustor should consult with an experienced estate planning attorney who can provide guidance on what types of conditions can or cannot be established.
4. The spendthrift trust provision allows the trustor to protect the assets within the trust from any creditors that may have claims against the beneficiary, as well as safeguard the assets should the beneficiary experience divorce or bankruptcy.
5. The trustor has peace of mind that their assets, and their loved ones, will be protected and managed in the best interest of everyone involved.

Don’t leave your estate up to fate. If you think a spendthrift trust may be right for you, contact the Law Offices of Elsa W. Smith today to help you on your path to protection and empowerment.