Do I Need a Spendthrift Trust for a Relative?
Spendthrift trusts can protect children from their wasteful spending habits.

Do I Need a Spendthrift Trust for a Relative?

Newsday’s recent article, “What to consider when creating a ‘spendthrift’ trust,” explains that a spendthrift trust protects people from themselves. A trust can be a great protection for those with an issue with drugs, alcohol, gambling or even a person who’s married to a wild spender.

A spendthrift trust—also called an “asset protection trust”—gives an independent trustee the power to make decisions as on how to spend the funds in the trust.

The beneficiary might get trust benefits as regular payments or need to ask permission from the trustee to access funds at certain times.

A spendthrift trust is a kind of property control trust that restricts the beneficiary’s access to trust principal (the money) and maybe even the interest.

This restriction protects trust property from a beneficiary who might waste the money, and also the beneficiary’s creditors.

Remember these other items about asset protection trusts:

  • Be sure that you understand the tax ramifications of a spendthrift trust.
  • If the trust is the beneficiary of retirement accounts, the trust must be designed to have the RMDs (required minimum distributions), at a minimum, flow through the trust down to the beneficiary.
  • If the trust accumulates the income, it could be taxable. In that case, the trust would have to pay the tax at a trust tax rate. That’s substantially higher than an individual rate.

It’s critical that you choose your trustee carefully. You may even think about going with a professional corporate trustee.

If the wrong trustee is selected, he or she could keep the money from the beneficiary, even when the beneficiary legitimately needs it.

Learn how a spendthrift trust can be the best gift you can ever give to a loved one.

Reference: Newsday (June 23, 2019) “What to consider when creating a ‘spendthrift’ trust”

A Trust Can Protect Kids from Too Much, Too Fast, Too Soon
Parent Protecting Child's Inheritance With a Trust

A Trust Can Protect Kids from Too Much, Too Fast, Too Soon

Protecting your children from frittering away an inheritance, is often done through a spendthrift trust but that trust can also be used to protect them from divorce and other problems that can come their way, according to Kiplinger in “How to Keep Your Heirs from Blowing Their Inheritance.”

We all want the best for our kids, and if we’ve been fortunate, we are happy to leave them with a nice inheritance that makes for a better life. However, regardless of how old they are, we know our  children best and what they are capable of. Some adults are simply not prepared to handle a significant inheritance. They may have never learned how to manage money or may be involved with a significant other who you fear may not have their best interests in mind. If there’s a problem with drug or alcohol use, or if they are not ready for the responsibility that comes with a big inheritance, there are steps you can take to help them.

Don’t feel bad if your children aren’t ready for an inheritance. How many stories do we read about lottery winners who go through all their winnings and end up filing for bankruptcy?

An inheritance of any size needs to be managed with care.

A spendthrift trust protects heirs, by providing a trustee with the authority to control how the beneficiary can use the funds. A trust becomes a spendthrift trust, when the estate planning attorney who creates it uses specific language indicating that the trust qualifies as such, and by including limitations to the beneficiary’s control of the funds.

A spendthrift trust also protects assets from creditors, because the heir does not own the assets. The trust owns the assets. This also protects the assets from divorces, lawsuits and bankruptcies. It’s a good way to keep the money out of the hands of manipulative partners, family members and friends.

Once the money is paid from the trust, the protections are gone. However, while the money is in the trust, it enjoys protection.

The trustee in a spendthrift trust has a level of control that is granted by you, the grantor of the trust. You can stipulate that the trustee is to make a set payment to the beneficiary every month, or that the trustee decides how much money the beneficiary receives.

For instance, if the money is to be used to pay college tuition, the trustee can write a check for tuition payments every semester, or they can put conditions on the heir’s academic performance and only pay the tuition, if those conditions are met.

For a spendthrift trust, carefully consider who might be able to take on this task. Be realistic about the family dynamics. A professional firm, bank, or investment company may be a better, less emotionally involved trustee than an aunt or uncle.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Learn how a trust can protect a child’s inheritance not only from themselves but from creditors and predators like a divorcing spouse.

Reference: Kiplinger (June 5, 2019) “How to Keep Your Heirs from Blowing Their Inheritance.”