Spendthrift Trust

A spendthrift trust protects your assets from being wasted by a beneficiary who is a reckless spender. This type of trust lets you distribute assets to your beneficiaries under specific conditions. In this article, we will go over the basics of how a spendthrift trust works.

People Involved

There are three sets of people involved in a spendthrift trust. The first is the Grantor. This is the person who creates the trust and puts assets into it. Second is the Trustee. This is the person who is going to manage the assets according to the terms of the trust. Lastly, is the beneficiary. This is the person who received benefits from the trust.

Special Wording

The difference between a typical revocable trust and a spendthrift trust is the spendthrift clause. This designates the trust as the owner of any assets inside of it verses giving assets as an outright distribution to a beneficiary. In this clause you will set out the exact terms on how and when the trustee will distribute funds to your beneficiary.

Creative Timing

A spendthrift trust is going to give you a lot of flexibility on how you want your assets to go to your beneficiary. You can have your trustee transfer funds to your beneficiary on set dates or time periods. But you can also build in exemptions for emergencies.

Advantages and Disadvantages

Spendthrift trusts come with several advantages and disadvantages. The first advantage is that it allows you to leave your beneficiary with a reliable income stream while preventing them from squandering assets. The second advantage is it can protect what you leave behind to your beneficiary from creditors and lawsuits. The last advantage is that any assets in the name of the trust will avoid probate. The main disadvantage is it can be costly to set up and maintain.

Questions to Consider

Before you go to set up your trust there are several questions that you need to know the answer to first. These questions include:

• Who will be your trustee and successor trustee?
• Is your beneficiary a minor? If so, who will you appoint as a guardian to manage the funds?
• Will your trust be revocable or irrevocable?
• How often and how much should payments be for the beneficiary?
• Will the payments to the beneficiary be made from the principal of the trust or the income of the trust?
• Will payments be made on a strict schedule or will you leave room for flexibility?
• Over how many years should payments be made to your beneficiary? Will it be for their lifetime or a set period of years?

Setting Up a Spendthrift Trust

If you feel a spendthrift trust is right for you, meet with a qualified estate planner to get the process started.

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