What is standing between you and the creation of your estate plan? For many people, it’s their heirs and/or the lifestyles of these potential beneficiaries.
You love all your children and grandchildren equally, of course. But there may be no denying that one or more of them have significant issues that leave you leery of leaving them a behest that could prove to be their undoing.
What situations are compatible with spendthrift trusts?
Adult children or other relatives who have thus far proven to be unable to manage their money are good candidates to be beneficiaries of spendthrift trusts. So, too, are heirs who have struggled with various addictions — drugs, alcohol, gambling and even shopping.
In fact, these types of trusts can be ideal for many beneficiaries. Your heir could be married to a profligate spender itching to get their talons into your son’s or daughter’s inheritance. By funding a spendthrift trust instead, you can ensure that the principal remains untouchable.
Are they like other financial instruments?
Spendthrift trusts are just like other trusts, but they contain a spendthrift provision, and the funds are disbursed at preset intervals by a trustee whom you appoint. These trusts can save your heirs from their worst financial impulses while still providing them with enough of a stipend to live comfortably. The trust itself is protected from bankruptcy and court judgments as well.
What are the negatives?
Beneficiaries sometimes feel that spendthrift trusts exert “dead-hand control” over their lives from beyond the grave. Relationships can also be disrupted if the trust grantor (you) appoints another family member as trustee over the funds of their relative.
The latter can be avoided by appointing as trustee a neutral, unrelated legal or financial professional to oversee the trust’s management and disburse funds to the beneficiaries.