A Primer on Spendthrift Trusts

How can I provide for a troubled heir in my estate plan?

When it comes to estate planning, some individuals are faced with the prospect of leaving property to a beneficiary who is not financially responsible or has other issues that may cause him or her to spend through the inheritance. One way to avoid leaving property to an heir who may squander it is to establish a spendthrift trust.

What is a Spendthrift Trust?

In short, a spendthrift trust is designed to limit access to principal in order to protect it from the beneficiary or his or her creditors. Rather than providing trust property directly to the beneficiary, the grantor names a trustee who is tasked with providing a regular payment to, or buying goods and services for, the beneficiary.

Spendthrift trusts are particularly effective when the beneficiary does not know how to handle money, has an addiction to drugs or alcohol, is susceptible to being taken advantage, or has a history of falling behind on debt. By establishing such a trust, the beneficiary can be provided for while minimizing the risk that the trust property will misspent.

The Trustee's Powers

Because a spendthrift trust is designed to protect the beneficiary from himself or herself, it is crucial to designate a trustee who has the capacity to manage the trust in a way the provides for the beneficiary while preserving the value of trust property. The trustee can be empowered to make set payments to the beneficiary on a regular basis, or determine under which circumstances payments should be withheld, particularly if the beneficiary gambles, gets into debt, or becomes involved in a misguided relationship.

Obviously, this power can become a burden for the trustee since it entails monitoring the beneficiary's behavior. That being said, the grantor can determine the conditions for managing disbursements such as requiring drug or alcohol testing before funds are released or making payments directly to a landlord rather than the beneficiary. A trust can also include incentives, such as graduating from college or finding a job, before the disbursement of payments to the beneficiary.

In the end, a well designed and thoughtful trust should consider the unique circumstances of the grantor, the beneficiary, and the trustee. By engaging the services of an experienced estate planning attorney, you can put a spendthrift trust in place that will preserve your assets, provide for your troubled heir and leave you with peace of mind.

Categories: 
Related Posts
  • Karl Lagerfeld’s Cat Set to Inherit Millions Read More
  • Do You Have a Robinhood Account? Read More
  • What Happens to Your Facebook Account Should You Pass Away? Read More
/