Most of my clients create trusts to prevent the government and creditors from siphoning away their hard-earned assets upon their death. Unfortunately, another real risk to your assets is your beneficiaries, the very people to whom you are so generous. A trust can help you avoid both of these risks, especially if you work with an estate planning professional to create a “spendthrift trust” that protects your assets from unreasonable depletion.

As an estate planning professional, I have helped countless people create trusts to make sure that their assets pass according to their wishes, to avoid probate, and to gain strategic tax advantages. With the help of an experienced estate planning attorney, you can create a trust, including a spendthrift trust, that achieves your goals through a highly personalized trust creation process. If you have questions about incentive trusts or any other area of estate planning, call experienced Bay Area attorney Linda J. MacKay today at 408-379-9600.

How a Spendthrift Trust Works in California

A spendthrift trust is in many ways an ordinary trust. Like all trusts, you are creating a legal device that allows your assets to be overseen and distributed by a third-party trustee. In a typical trust situation, your heir can not only spend the trust payments he or she is scheduled to receive each year, but can also use the trust’s assets as collateral for loans.

As an example, imagine you left $10 million to your daughter in a trust that is scheduled to pay her $500,000 per year. In a normal trust situation, she could not only spend the $500,000 yearly payment but could also use the remaining trust assets as collateral to purchase a $12 million beach home. Sadly, the trust could be devoured if she defaulted on that beach dream house. When you created your trust, you intended for her to receive a prorated income for life, not for her to spend the entire trust amount all at once. A spendthrift trust prevents precisely this sort of frivolity.

In a spendthrift trust, a trustee—either an individual or an asset management company—makes decisions about how trust assets are distributed after you die. Using your wishes as a guide, the trustee makes decisions about the size and timing of trust payments. This allows the trust’s principal assets to continue to grow untouched. Because the trustee has complete control over the trust’s principal, the principal cannot be used as collateral by a beneficiary.

If you have a spendthrift trust, your daughter could still try to purchase her dream beach house, but the bank could only go after her yearly income of $500,000, and the remainder of the principal would remain out of the creditors’ reach. I should note that you cannot name yourself as a beneficiary of a spendthrift trust to keep yourself from spending your own assets down and to protect those assets from creditors—public policy justifications prevent this sort of trust creation.

If You Need Estate Planning Help, Call Linda J. MacKay Today

You have worked too hard to lose your assets to the government or free-spending beneficiaries. Creating a trust can help you protect your assets for the future. As discussed above, a spendthrift trust can help you protect your assets and your beneficiaries simultaneously. If you have questions about spendthrift trusts or other estate planning questions, call an experienced estate planning attorney today. Attorney MacKay has the experience to help you through this challenge and to guide you through the estate planning process.

Contact the Law Offices of Linda J. MacKay today at 408-379-9600. We are standing by to help you with your estate planning.