What is a spendthrift trust and how could a spendthrift trust benefit my family?
A trust is an estate planning tool that can be used to pass down your assets to your loved ones. With a trust, you will create a fiduciary relationship that allows a third party, the trustee, to manage assets on behalf of named beneficiaries. Trusts can be written in any number of ways and have the ability to specify exactly how and when assets will pass to the beneficiaries. Trusts offer several critical benefits, including minimization of taxes and avoidance of probate. One of the most important functions some trusts can serve is protecting beneficiaries from their own spending habits and creditors. A spendthrift trust is an effective estate planning method for many individuals with heirs that may incur debts.
Spendthrift Provisions in Your Florida Trust
A “spendthrift” is a term for an individual that spends more than he or she has. Spendthrift provisions can be inserted into a trust to protect the beneficiary from reckless spending. A spendthrift clause will block a beneficiary from reassigning his or her interest in the trust and prevents creditors of the beneficiary from seizing any of the trust funds until they are in the hands of the beneficary.
The beneficiaries of a spendthrift trust will not have direct access to the funds. Rather, the beneficiaries will receive benefits from the trust through the named trustee. Benefits can come in the form of regular payments or goods and services purchased through the trust for the beneficiary. Once payment is made to the beneficiary, those funds could be subject to seizure by creditors.
Should You Consider a Spendthrift Trust?
You should consider a spendthrift trust if your beneficiary or beneficiaries are:
- Not good with money;
- Have considerable debts;
- May squander funds due to addictions; or
- Might be easily defrauded or deceived.
If any of these situations exist, you should consider creating a spendthrift trust to protect your assets. You will want to carefully deliberate who to name as trustee because the trustee will play an important role in managing the trust funds. Seek help from an estate planning lawyer for assistance in crafting your ideal spendthrift trust.