When you have worked and saved all of your life so that you can provide for your family after you are gone, it is upsetting to think that heirs might squander their inheritance. Fortunately, there are estate planning tools that you can use to prevent this from happening. In fact, there is a specific kind of trust, called a spendthrift trust, which is meant to deal with exactly this problem. Setting up a spendthrift trust can be complicated and must be done correctly to be effective. Our skilled estate planning attorneys have years of experience helping clients protect their legacies with spendthrift trusts, and we can help you.
What is a Spendthrift Trust?
A spendthrift trust is a living or testamentary trust that contains a spendthrift clause. This clause usually releases the inherited funds to the beneficiary a little at a time instead of in one large lump sum. Because the trust owns the assets, not the beneficiary, the beneficiary’s creditors cannot access the funds or require any assets to be liquidated to pay off their debts.A trustee named by you will be in charge of regulating the disbursement of funds according to the wishes you have stated in the trust. In this way, the heir in question is prevented from spending all of the money right away, giving it to another person, or losing it to creditors.
Who Should I Choose as the Trustee of a Spendthrift Trust?
For spendthrift trusts, it is often best to choose a bank or other corporate trustee to administer the trust after your death for several reasons. For example, the beneficiary is likely to be a young person and could outlive an older family member who was named trustee. Naming a corporate or non-family trustee also helps diffuse any family conflict if the beneficiary is angry about their limited access to the entire inheritance and blames the trustee or if other family members might try to manipulate a family-member trustee out of envy or greed.
Are Spendthrift Trusts Revocable or Irrevocable?
Any trust can have a spendthrift added, whether the trust is revocable or irrevocable. Which to choose depends on a variety of factors. Revocable trusts are more flexible and can be changed during your lifetime as circumstances change but have few or no tax or probate benefits. Irrevocable trusts cannot be changed once they are established but can offer more in terms of probate avoidance and tax benefits. Whether a revocable or an irrevocable trust is better for your particular situation is something to discuss with one of your skilled estate planning attorneys.