The Spendthrift Trust

We have all known individuals who aren’t very prudent when it comes to handling their finances. Even those who excel at attracting wealth often have trouble keeping it. If you are creating a trust but you are concerned about the potential profligacy of one or more of your beneficiaries, you may want to consider establishing a spendthrift trust.

A spendthrift trust is one of several types of property control trusts – others include specials needs trusts and sprinkling trusts, both of which we will hopefully examine in future blog posts! A property control trust simply establishes certain limits or controls over your beneficiaries’ rights. With a spendthrift trust, the beneficiaries can be prevented from using trust principal unwisely. Additionally, the principal is protected from creditors in the event that the beneficiaries get into trouble with debt.

When you establish a spendthrift trust, the beneficiary will still have access to some portion of the trust property, of course. Here’s how it works: as grantor of the trust, you will name a trustee, who is the individual who oversees your property in accordance with the specifications in the trust. The trustee is the one responsible for issuing payments to your beneficiaries. The terms of the trust will enumerate the frequency and amount of these payments, which can be rendered in cash or else in goods and services purchased for the beneficiaries by the trustee. Once a payment is made, the money becomes available to both the beneficiaries and their creditors.

If you’re unsure whether or not should establish a spendthrift trust, it can help to consider the habits of a potential beneficiary. Of course, if they manage money poorly, a spendthrift trust is probably ideal; however, there are other reasons that might warrant such a trust. Is the person prone to being cheated or deceived? Is it possible that they might get into significant debt? Do they have substance abuse or addiction issues? It is also important to consider the role of the trustee you are naming in a spendthrift trust. For instance: what type of payments would you like to see issued, and how often? Are there situations in which the trustee should be permitted to withhold payment entirely – for instance, if gambling becomes an issue for a beneficiary?

The best way to decide if a spendthrift trust makes sense for you is to consult with an experienced estate planning attorney. If it makes sense for your circumstances, we can help walk you through the process of establishing the terms of a spendthrift trust. Call Marc A. Bronstein, A Professional Law Corporation.

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