Hyden, Miron & Foster, PLLC Law Blog

Friday, May 28, 2021

What Is a Spendthrift Trust?

Trusts can be incredibly valuable estate planning tools. The number of trust types available are various and can serve a variety of different purposes. In general, a trust is established by the trustor or trust settlor and funded for the benefit of the trust beneficiaries. To fund a trust, ownership of assets is transferred to the trust. A trustee is appointed to manage the corpus of the trust, the trust funds, for the benefit of the trust beneficiaries. The terms and structure of the trust will differ depending on the type of trust as well as the purpose of the trust.

One type of trust is a spendthrift trust. Popular for use in asset protection, a spendthrift trust can be a great, secure way to transfer assets to your beneficiaries with a certain level of protection and privacy built-in. Let us take a closer look at spendthrift trusts and how they can be utilized in your estate plan.

What Is a Spendthrift Trust?

Sometimes, we have loved ones whom we would like to leave an inheritance to, but worry about their poor spending habits. Perhaps, your intended beneficiaries have terrible money management skills. Perhaps there are creditors who would jump on and take any inheritance you left them. It may even be the case that a loved one struggles with addiction and you worry that any inheritance left to them would just go to funding that addiction. There can be any number of reasons to worry about what will happen to an inheritance you leave to a loved one. A spendthrift trust can offer a certain level of protection of the inheritance you leave behind.

The protection of the inheritance happens mainly at two levels. First, the trust shields the assets from creditors of a trust beneficiary. This is because it is actually the trust that owns the assets, not the beneficiary. This means that creditors of a beneficiary will not be able to go after the assets held in a properly structured and funded spendthrift trust. A spendthrift trust also offers protection from a beneficiary quickly whittling away trust funds down to nothing. As the trustor, you can establish the terms of distributions from the trust. You can space out the distributions. You can also condition the distributions. For instance, you can have trust funds only distributed should the trust beneficiary attend college and then limit trust beneficiaries to educational expenses or costs associated with pursuing a degree from an institute of higher education. Spacing out distributions can be a safer way to distribute your assets than through a lump sum inheritance which a beneficiary may quickly spend through.

A spendthrift trust, like other trusts, also offers an added level of privacy. Assets that pass through a will and probate proceedings become a matter of public record. A spendthrift trust, however, would pass outside of probate. This means the inheritance you leave behind and who gets what would remain private, outside of the public record.

Estate Planning Attorneys

For more information on how trusts can be valuable additions to your estate plan, consult with the knowledgeable estate planning attorneys at Hyden, Miron & Foster. We are here to establish comprehensive estate plans that best meet the needs of our clients. Contact us today.

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