Spendthrift Trust

How a Spendthrift Trust Can Protect Your Heirs From Themselves

What happens when you have assets and wealth to leave for your family that you think may bring them more harm than good? Many parents have worked hard for their entire adult lives only to leave their nest eggs and retirement accounts as an inheritance to children and grandchildren where they’ve been squandered. A spendthrift trust may be the answer to your problem. It is an effective tool for protecting your heirs from their impulses to spend wantonly. These trust structures will keep inherited money safe from creditors and irresponsible heirs. The assets in the trust are retained long-term, and the beneficiaries will receive schedule distributions instead of giving complete access to the entire account.

Preparing for the Future With a Living Trusts

Living trusts are legal documents structured to hold the assets of a grantor. A trustmaker or grantor is the person who created the trust. Once a trust has been created, and a trustee is assigned, the assets in the trust are retitled to the trustee’s control. The terms of the trust specify whether it’s revocable or irrevocable. Revocable trusts are very flexible, while irrevocable are not. Grantors can move, sell, and increase the assets within a revocable trust, and they can change the beneficiaries or dismantle the trust. A revocable trust has a successor trustee and when the grantor dies, that person will step into their place. As the name suggests, irrevocable trusts are less flexible, but that sacrifice is repaid with tax benefits. Unlike the revocable trust, the grantor cannot serve as trustee of their irrevocable trust, and their trust is less flexible. All the assets within the trust are forever gone from the control of the grantor. They cannot move property in and out, change beneficiaries or make any real changes.

How a Spendthrift Trust Works

A spendthrift trust is a type of irrevocable trust, and unlike most trusts that transition upon the grantor's death, a spendthrift trust remains in effect after the death of the trustmaker. The trust will make scheduled distributions to beneficiaries as outlined in the trust documents. A spendthrift trust exists to slow drip assets to beneficiaries to prevent assets from being squandered. Another reason for spendthrift trusts is the creditor protections it provides. If beneficiaries have numerous aggressive debts, a grantor may place assets into this type of living trust. While the beneficiary may technically own the trust, it remains inaccessible until it is meted out; therefore the assets are also not accessible to creditors until they are received. Depending on how the trust is designed, the grantor will set the terms regarding dispersals in the trust documents or give those rights to the trustee.

Contact Our Elk Grove Estate Planning Lawyers

Planning for how your estate will be distributed to your loved ones following your passing is a sensitive issue. When you turn to Samra Dhillon & Associates, you can work with a team of compassionate legal professionals who do not take these matters lightly and always have your best interests in mind. Rely on us to help you create an estate plan that is right for you and your family. Call us at (916) 571-1550 to schedule a consultation today.