
You may have already decided to set up trust accounts for your desired beneficiaries rather than leaving instructions for asset distribution in your Last Will and Testament document. But now, you must choose which trust type to pursue. After all, trust types have varying functions, and your beneficiaries may benefit more from one than the others. Specifically in this blog, please continue reading to learn more about how a spendthrift trust works and how one of the experienced Butler County trust attorneys at Heritage Elder Law & Estate Planning, LLC, can help you determine whether incorporating one in your estate plan is the most strategic move for you and your beneficiary’s sake.
How does a spendthrift trust function?
Simply put, the driving factor behind a spendthrift trust is its asset protection function. That is, it has a protection mechanism that limits access to the assets that fund it. This limited access is imposed, of course, onto your named beneficiary, but also onto other external parties that may attempt to interfere here. Without further ado, a spendthrift trust works like this:
- You, as the grantor, transfer assets into the trust and relinquish your ownership rights over them.
- You appoint a trusted individual as the trustee to manage the trust assets when the time comes.
- Your trustee will distribute the assets to your named beneficiary according to your set provisions.
- Your beneficiary will never have direct access to these assets, but is at the mercy of your trustee.
When should I consider a spendthrift trust?
Upon initial thought, you may not understand why you would want to restrict your beneficiary’s access to the assets you want them to have. Well, first of all, when you transfer assets into the trust, they become a separate legal entity from you and your beneficiary. With this separation, your beneficiary’s creditors may be incapable of coming after these assets still held within the trust.
While your beneficiary may not be in any financial trouble at the moment, you may not be blind to their history of money mismanagement. Therefore, this trust type may be used as a precautionary tool, should they ever face bankruptcy, lawsuits, or any other collection activities from their creditors.
At the same time, given their poor money handling skills, this trust may be beneficial in that you may direct your trustee to distribute its assets in small increments over a long period. This way, you may ensure that these funds last for an extended time rather than being spent all at once in one place. Of note, you may even direct that these funds can only be used for certain purposes, so that your beneficiary cannot waste them on nonsensical, materialistic things.
To give yourself enough time to develop a solid estate plan, please be sure to get in touch with one of the skilled Butler County estate planning & probate attorneys from Heritage Elder Law & Estate Planning, LLC, as soon as possible. We look forward to hearing from you.