Spendthrift trusts allow estate planners to protect their assets from loved ones who may spend the assets gambling or on other addictions. Many estate planners aim to protect their assets and give them to their surviving family members or friends. Estate plans can protect your assets from unnecessary taxes and creditors. They can also be important to protect your assets from loved ones who pose a financial risk to the assets themselves.
Christopher Heritage is a spendthrift trust attorney representing clients in Palm Springs, California. He helps clients create comprehensive estate plans that meet each client’s unique needs and goals. A spendthrift trust is an important legal tool that allows you to help those you love after you’re gone and need help managing their money. Contact Heritage Legal, PC today to schedule an initial consultation.
What Is a Spendthrift Trust?
A spendthrift trust is a specific type of trust used for estate planning purposes. As with all trusts, you will need to write and sign a trust agreement and then transfer assets into the trust. The trust legally owns assets transferred into the trust. You can appoint one or more trustees to manage the assets in the trust to benefit the beneficiaries. In many trusts, the beneficiary will receive scheduled disbursements from the trust and may have access to the trust’s assets to be used as collateral for loans.
When a beneficiary is a spendthrift and not responsible in managing money, he or she could spend the payment and use the remaining trust assets as collateral for loans. Perhaps he or she takes out a loan on a far too expensive home. If he or she defaults on the payments, the trust could be devoured. Spendthrift trusts prevent your beneficiary from spending the entire trust amount at once by ensuring he or she receives a prorated income for life.
The spendthrift provision limits the beneficiary’s access to assets. This clause prevents the beneficiary from squandering his or her inexperience before receiving the assets. The beneficiary will not be able to take loans against the principal assets in the trust, use the assets to purchase, or give away the assets. The spendthrift provision protects the principal assets from creditors.
Trustees Maintain More Control Over the Trust Assets
When you create a spendthrift trust, the trustee decides how the trust assets will be distributed to your loved one after you die. You can appoint an individual you trust or an asset management company to make decisions about the assets in the trust. As the trust creator, you can specify requirements related to the size and timing of payments the trustee will make to the beneficiaries.
The trustee has complete control over the principal assets in the trust, and the beneficiary cannot use those assets as collateral. As a result, the principal assets in the trust can continue to grow over time, untouched by creditors or the spendthrift beneficiary.
Appointing a TrusteeThe trustee you appoint will have complete control over the trust funds and assets during the trust’s life. The trustee will have control over the assets in the estate, ensuring the beneficiary won’t be able to use the collateral in the trust to overspend. As the trust creator, you can appoint an individual, an attorney, or a professional asset management firm.
You’ll benefit from appointing a trustee you can trust to do what is fair and in accordance with the trust’s terms. Dealing with financially irresponsible beneficiaries can be challenging, so it’s important to select a person or company you know will enforce the trust agreement and protect the beneficiary from his or her own overspending.
Is a Spendthrift Trust Right For Me?
Spendthrift trusts can be useful tools, especially if the person you’d like to inherit your assets cannot responsibly manage finances. A spendthrift trust allows you to help him or her financially while protecting their inheritance simultaneously. Although anyone can be a beneficiary of a spendthrift trust, these types of trusts may be best suited for a person who:
Cannot manage finances well Spends more money than he or she earns Cannot be trusted with a large amount of money Is an adult with a disability that interferes with his or her ability to manage finances Has a mental illness that interferes with his or her ability to manage finances or induces bad judgment regarding money Has an alcohol, drug, or gambling addiction, or another type of addiction
The Benefits of Spendthrift Trusts
There are many advantages of a spendthrift trust, including the following:
Protecting the beneficiary’s inheritance from creditors Bypass your beneficiary’s need to go through probate Preventing the beneficiary from squandering his or her entire inheritance at once
The Disadvantages of Spendthrift Trusts
There are some disadvantages to including a spendthrift trust as part of your estate. For example, some debts like child support or alimony cannot be exempt from the spendthrift trust. Suppose your loved one goes through a difficult divorce and is required to pay his or her ex-spouse. In this case, the assets owned by the trust will not be exempted. Additionally, the spendthrift trust may be irrevocable, meaning you will not be able to change or revoke the trust. If you’re unsure whether a spendthrift trust is right for you, speaking to an attorney can help you better understand the positives and negatives.
Discuss Your Estate Plan with an Experienced Attorney
Whether you’ve already created an estate plan or are interested in starting the process, Heritage Legal, PC is here to help. If you have loved ones, who struggle with managing money due to gambling or addiction, a spendthrift trust may meet your goals. Lead attorney Christopher Heritage has an in-depth understanding of California spendthrift trusts and other estate planning tools. If you are interested in creating a spendthrift trust in the Palm Springs area, contact Heritage Legal, PC to schedule a free consultation. |