With a solid career, substantial income and keen investing, you have built an admirable estate. With roughly 10 years to go before retirement, you understand that the assets you accumulated will last for the rest of your life. Although you have an estate plan in place, you determine that you want to make some revisions to protect your spouse, your children along with your nest egg.
Among the reasons for the pending changes: You have concerns about one child’s spending habits and his inability to manage money. A spendthrift trust represents an effective option toward accomplishing this.
Protecting heirs from themselves
A spendthrift trust is another tool that protects and preserves your money that you want to pass on to your heirs and beneficiaries. Administered by a third-party trustee, a spendthrift trust also protects the assets from creditors and the heirs themselves, who may not have the best relationship with money.
Your heirs do not get their share of assets all at once, instead, they will receive them in piecemeal as provided to them by the trustee. The trustee could be a reliable person you know or an asset management firm. As a result, your heirs only spend the money they receive. They will not get a lump sum, and they should not expect it. You want their inheritance to last a long time.
These are your wishes, and the trustee will follow them. And while you may feel the need to explain the reasoning to your children, you really do not have to. They likely understand why. For example, you may question the decision-making of an adult child who has a spending problem. Perhaps they have problems with substance abuse or gambling, which represent other ways to throw away money.
Protection from creditors
Another advantage of a spendthrift clause is that it protects the assets from creditors. If your heir or beneficiary owes lots of money to creditors, those creditors will do their best to secure that money. If that inheritance arrives in one big sum, creditors will immediately lunge. However, with a spendthrift clause, your heir only gets portions of the assets.
An additional benefit of a spendthrift trust is that trustees oversee them from inception until after the death of the grantor. This represents a marked difference with other trusts. The latter stop operating once the grantor dies, and then the remaining assets are distributed.
Protecting your estate is crucial, and you want to create an estate plan that works best for you. A spendthrift trust is one of a few options, and it is a solid one that protects your assets and the ones you love.