Part of estate planning is deciding who inherits your assets. Most people want to leave their assets to their children. Unfortunately, if your son or daughter is not fiscally responsible, he or she could blow through the inheritance. There is a way you can protect his or her inheritance.
What Is a Spendthrift Trust?
A spendthrift trust is used to prevent beneficiaries from spending all of their inheritance at once. A third party will serve as the trustee and he or she is responsible for disbursing the funds to the beneficiary. You can opt to set up payments from the trust on a timetable or on special occasions, such as getting married or graduating from college.
The trust also provides other protections that can be beneficial to both you and the beneficiaries to your estate.
Why Should You Establish a Spendthrift Trust?
One of the main benefits of a spendthrift trust is that it can protect your beneficiaries from creditors. The funds belong to the trust, and as such, creditors cannot force payments from it to take care of debts.
Another benefit is that a spendthrift trust prevents your beneficiaries from selling their trust payments to a lender.
How Can You Establish a Spendthrift Trust?
An estate planning attorney can help you establish a spendthrift trust. You will need to decide several aspects of the trust while setting it up. For instance, you have to decide exactly what responsibilities you want the trustee to have and how he or she is supposed to disburse payments.
Some trusts are set up so that the trustee buys the things that the beneficiaries need instead of disbursing cash payments. A trustee also can have the power to make decisions on whether or not a heir should receive a payment. For instance, if the beneficiary starts using illegal drugs, the trustee could choose to withhold payments until he or she receives substance abuse help. In addition to these components, you have to decide how the trust is funded and when it ends. If you are funding the trust with the assets you possess now, you can decide whether or not you want to transfer funds to the trust now.
If the trust will be funded with your insurance and retirement funds once you pass away, you need to ensure that each are setup to pay-on-death directly to the trust.
To ensure that you have covered every aspect of setting up a spendthrift trust, work with an estate planning attorney like Skeen Law Offices.
