You wondered how your children turned out the way they did. They were so different from each other despite that they grew up in the same household, were raised on the same values and had similar opportunities from childhood to adulthood.
But their differences were astounding, especially when it came to money management. And this makes you concerned, especially while you consider creating an estate plan. You want to make sure you children secure their share of assets once you die, but you also want to make sure those assets do not get mismanaged. This is the time to consider creating a spendthrift trust.
Protects assets from creditors and beneficiaries
A spendthrift trust protects the assets from creditors and from the poor decision-making of the trust’s beneficiaries. What if one of the beneficiaries has a drug habit? What if another has a gambling problem or an impulsive buying habit that has led to significant debt? You likely have known for years how some of your children mismanage money.
With a spendthrift trust, beneficiaries will not get their hands on the trust’s entire assets since distributions come in increments. You need a trustee who will not be bullied and intimidated and maintains the best interests of the estate.
Creditors, too, may be clamoring for their money, going after certain trust beneficiaries who owe them a great deal. But, since the ne’er-do-well beneficiaries cannot access significant amounts of the assets, the creditors will not receive the big pay-off that they expect. A spendthrift trust relies on this two-pronged approach in protected assets from beneficiaries and creditors.
Also, a spendthrift trust is an irrevocable living trust and managed by a trustee from its inception to after the person who created the trust has died. This represents a crucial difference with other trusts. For the latter trusts, after the grantor – the one who created the trust — dies, the trust ceases to operate and every asset gets distributed. Not so for a spendthrift trust, where the assets remain.
A spendthrift trust is a beneficial estate planning tool. Consider creating one. Although some of your beneficiaries may protest such a move, in the long run, they will thank you, knowing that you – as their parent – continued to look out for them.