It is important to have a realistic view of your heir’s financial capabilities. If you are worried about an heir’s spending now, there is a good chance your concerns are justified, and it is worth looking into ways to protect them from themselves.
Spendthrift trusts are trusts structured to keep assets from being squandered, usually by allowing regular payments to beneficiaries while preventing them from owning the assets in the trust outright. This measured system can allow your heirs to live comfortably without the danger of questionable financial choices jeopardizing their standing.
How it Works
Spendthrift trusts can be irrevocable trusts that are made while the grantor is still alive.A spendthrift trust can also be set up inside your revocable trust to take effect upon the grantor’s death. The spendthrift trust set up to take effect upon the grantor’s death, will distribute the trust assets to the beneficiary or beneficiaries in increments determined by you.
Why Use a Spendthrift Trust
As the name implies, the most obvious reason to set up a spendthrift trust is to protect a spendthrift heir from themselves. The strictly structured increments of the trust distributions make them excellent at slowing someone down so they use large inheritances more like they would a regular income.
There is another big reason why some people choose spendthrift trusts, however: since the trust beneficiary has no ownership over the assets in the trust, creditors cannot collect on those assets. This is excellent in situations where you want to leave an inheritance for someone whom you know has outstanding debt. The beneficiary also cannot use the trust as collateral to take on new debt, further solidifying the spendthrift trust as a secure way to leave money to risky individuals.
Other reasons to consider a spendthrift trust include:
- You suspect that your heir may be married to someone who would divorce them to get their money.
- Your heir has a drug, alcohol, or gambling addiction.
- Your heir has a habit of overestimating their financial capabilities when making large investments such as home purchases.
Make Sure Your Spendthrift Trust is Set Up Securely
The nature of a spendthrift trust means that they are one of the trusts most in need of a legal review. These trusts need to stand up to efforts from the beneficiary trying to take control of the trust and from creditors seeking to seize assets. It is essential to have a lawyer review the clauses in your trust and make sure they will stand up to any challenges while fitting the regulations for your state. We are happy to help you with this here at Millman Law Group, and we offer free consolations where we answer any questions you have about protecting and securing your assets when you pass. Call us today to learn more.