Should You Create a Trust with Restrictions (Spendthrift Trust) for Your Heirs?

By Solid Serenity Legal Solutions

Every parent wants to take care of their children and will spend most of their life trying to do so, but how can you continue taking care of them after you are gone? This is especially of concern if you have reservations about your child’s ability to wisely spend their inheritance.

Whether they are young or financially immature and unable to budget their money well, they are in an unhealthy relationship, or are dealing with substance abuse, providing a large sum of money as an inheritance could have disastrous consequences. Whatever your reasons are for wanting to have more control over how your trust is given out, a spendthrift trust could be a solution.

What is a Spendthrift Trust?

A spendthrift trust protects your estate, and your heirs, by providing a trustee with the authority to control how funds reach the heirs. A spendthrift trust is what happens when the creator of a trust includes specific language that labels the trust as a spendthrift and provides limitations for how funds are distributed from the trust.

A key added bonus to the spendthrift trust is that any money in the trust is not owned directly by the beneficiary and so is not accessible to creditors. Generally speaking, a spendthrift trust is protected in the case of bankruptcy, divorce, or lawsuits, and also provides protection against manipulative friends or family of the heir.

Who should be the Trustee?

Who you choose to be the trustee is one of the most important decisions in making a spendthrift trust. The trustee will play a critical role in determining how and when to disburse funds.

The grantor (you) decides what powers the trustee will have. You can set up the spendthrift trust to be given out monthly regardless of circumstances, or determine specific benchmarks the heir must meet to receive funds, or you can give the authority to the trustee to use their discretion.

Examples include spendthrift trusts to set aside money for tuition with requirements concerning GPA or attendance in order to receive the funds; or if substance abuse is an issue, the disbursement of the money could be contingent on clean drug tests for a set period of time.

Because of the importance behind the power of the trustee, who you choose is extremely important. While you can choose anyone over 18 to be the trustee, you will want to carefully consider who you appoint.

Be aware of how relational dynamics can shift if you choose someone who the heir will see regularly. The trustee will be withholding funds from the heir to some degree by the nature of this trust which could lead to tensions if they are seeing each other at family events throughout the year. Another route available is to choose a company or bank to serve as a trustee for a fee.

How Do I Create a Spendthrift Trust?

The best way to go about creating a spendthrift trust would be to meet with a licensed estate planning attorney, lay out all of your concerns and assets, and come up with a plan to best serve your estate and your heirs. An attorney can help you determine if a spendthrift trust is right for your estate and then set about creating it to your specifications.

Call a trusted estate attorney today if you’re interested in discussing spendthrift trusts!

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