Parents and other relatives might love all their offspring equally. At the same time, they are likely aware of their loved ones’ flaws and challenges.
This perception is necessary when seeking an estate plan that covers all bases. Learn more below.
Who benefits from a spendthrift trust?
Any heirs and beneficiaries who lack the fiscal responsibility to manage large sums of money effectively are the traditional targets of spendthrift trusts. After all, sudden wealth can undermine those with the tendencies to blow right through the principle.
For estate planners with beneficiaries who struggle with substance abuse or gambling addictions, funding a spendthrift trust can keep them financially sound for their lifetimes instead of leading them down a dangerous path.
Others may also need these protections
“Spendthrift” is a bit of a misnomer here, as you don’t have to be bad with money management to benefit. Those who marry a domineering or controlling spouse (who may otherwise try to commingle and access the funds) will also benefit.
Others who can also benefit from a spendthrift trust include heirs who work in traditionally litigious industries, such as law or medicine. Their exposure to lawsuits that can drain inherited funds is higher than most. Spendthrift trusts protect the principal and cannot be attached or used as payment for adverse court judgments.
How is the trust principal protected?
The assets held in trust are protected from judgments and attachments. Trust funders appoint trustees to manage these funds that are then disbursed according to a preset schedule determined by the trust funder.
At no point will the beneficiaries have access to those assets except through disbursements. If that aligns with your intentions, it may be time to add a spendthrift trust to your estate plan.