attorney explaining spendthrift trust

What Is a Spendthrift Trust?

Do you worry about the best way to provide for your loved ones after you pass away? You are certainly not alone in this. Sometimes, providing for loved ones through an estate plan is not as simple as leaving behind a lump sum inheritance. Some people, for a variety of reasons, may not be best equipped to manage such a substantial amount of money. It can all too easily be mismanaged or whittled away far too quickly. If you want to provide for your loved ones, but worry about an inheritance quickly going to waste, you may want to consider a spendthrift trust.

What Is a Spendthrift Trust?

A spendthrift trust is a type of trust that is often created for the benefit of a person who has financial management or spending issues. That is how the spendthrift trust got its name. To establish a spendthrift trust, the trustor or settlor of the trust transfers ownership of assets to fund the trust. An independent trustee is then tasked with distributing the trust funds to the trust beneficiary according to the terms set forth in the trust document.

The trust protects the trust principal, the funds held in trust, from being accessed by the beneficiary’s creditors. This is because these funds are owned by the trust, not by the beneficiary, and the beneficiary does not have access to trust funds other than that which is distributed by the trustee. Due to the protection offered by a spendthrift trust, it can be a good idea to establish one should you have a loved one that struggles with creditors or may sometime in the future.

The terms of the spendthrift trust also empower you on a number of levels. First, you can protect your beneficiary from his or her poor spending habits and financial management abilities. This is because the trust funds will be distributed in intervals as opposed to a lump sum. The trustee will manage the trust funds for the benefit of the beneficiary. A lump-sum inheritance can be difficult to manage even for some more financially savvy beneficiaries. The spaced-out trust distributions can provide you with peace of mind that the inheritance you are leaving a loved one will last longer.

You are also able to place conditions on trust distributions. You may say that trust distributions should only begin if and when the beneficiary goes to college. Should you have a loved one that struggles with addiction, a situation where a spendthrift trust may also be a good option, you can even condition trust distributions on something like your beneficiary entering a rehabilitation facility.

Estate Planning Attorneys

A spendthrift trust is one of many valuable estate planning tools that you may want to consider. At OC Wills & Trusts, we are committed to developing strong estate plans that are tailored to meet your unique needs as well as your wishes for the future. Contact us today.