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Is a spendthrift trust right for me?

On Behalf of | Sep 8, 2021 | Trusts

You want to take care of your loved one, ensuring their financial needs are met for years to come. You have the assets necessary to accomplish your goal but you’re concerned about turning them over wholesale to your intended beneficiary. Perhaps it’s time to consider a spendthrift trust.

Spendthrift trust

The idea of a spendthrift trust is not new. The term came about to refer to an irresponsible beneficiary who may not properly manage an inheritance on their own. This type of trust was intended to place safeguards on the trust’s assets in order to protect them from the trustee’s worst impulses.

In one sense, this original concept of the spendthrift trust is still valid. An intended beneficiary may simply be a young person who has not yet matured sufficiently to handle the sudden influx of more wealth than they’re accustomed to. By creating a spendthrift trust, the assets belong to the trust itself, rather than the beneficiary. Instead, distributions are made from the trust to the beneficiary, at an amount and on a schedule chosen by the creator of the trust. Since the beneficiary cannot access the underlying assets, they remain protected.

Creditor protection

However, one of the most significant benefits of a spendthrift trust is its ability to shield the trust assets from creditors, a key consideration for estate planning. Since the beneficiary owns only the distributions themselves, as they are distributed, this is the only portion creditors can access. With some exceptions, the trust assets themselves remain out of reach from the beneficiary’s creditors.

A beneficiary does not have to irresponsible for this aspect of the spendthrift trust to have value. Some professions, for instance, can be particularly susceptible to lawsuits. A spendthrift trust can provide protection against the possibility of a future judgement against the beneficiary – keeping whole the underlying trust assets while allowing the beneficiary to enjoy the fruits of the trust.