At some point as a responsible parent who cares for the future wellbeing of your heirs, you may need to protect, preserve, and pass your wealth on to them. The spendthrift trust is an ideal solution. This tool helps a family keep their wealth safe from creditors, as well as heirs, by putting certain restrictions on it.
How does a Spendthrift Work?
When parents want to leave wealth to their offspring (who they may feel could be irresponsible with a huge chunk of money or property), they will make a spendthrift trust. Monies and/or properties are then transferred into this trust, which in turn controls that wealth. The designated heir is still the trust beneficiary and has the right to benefit from that trust. This means that the wealth/assets in the trust will be used to that person’s benefit.
During the process, the person creating the trust must also name a trustee. The trustee will have the fiduciary duty to manage the trust’s assets. The trustee also follows instructions contained in the trust document, as well as acting in the best interest of the beneficiary. In essence, the trustee is tasked with overseeing the wealth according to the benefactor’s stipulation in the trust document.
For example, if a clause in the trust documentation states that the beneficiary receives a certain amount of money on a predetermined basis (such as monthly), the trustee is responsible for enforcing this. The benefactor can come up with other rules, protocols, and procedures to ensure the trust wealth benefits the beneficiary altogether. The position of the trustee is to ensure that neither the beneficiary nor the creditors can access the trust assets with ill intentions.
Do You Need A Spendthrift Trust?
Whether or not you need to make a spendthrift trust will depend primarily on whether you trust the person set to inherit your property to manage it properly. There are a few benefits to having a spendthrift trust in place:
- It is the best way of providing financial support or lifetime income to an heir who may not be capable of managing the wealth properly.
- It is the best way to protect the property of a beneficiary who is buried in debt or is prone to lawsuits, medical bills, and alimony.
- It is the best move when the heir is limited to assigning, selling, pledging, or transferring the trust assets. This confirms to the grantor that the heir’s financial necessities will be met over a longer time.
- It is more private than a written will.
A spendthrift trust may be the best assurance that your offspring will not flush all your hard-earned wealth down the drain once you are gone. Hulbert & Associates, LLC has highly trained attorneys who can help you with this and other estate planning documents. Call us today at (970) 458-8101.
