While parents and doting grandparents may love all their heirs equally, that doesn’t mean that they all have the same strengths and weaknesses. That’s why some estate planners add some restrictions and boundaries into the legacies they bequeath.
One useful vehicle for doing this is a spendthrift trust. Learn more below.
Protect your heirs — and their inheritances
Some people are not financially savvy enough to manage substantial sums of money on their own. They might have substance abuse issues or like to gamble too much.
In some circumstances, it might not be a problem with the beneficiary but with the beneficiary’s spouse. The trust grantor may worry that their loved one’s overbearing spouse could harass them into accessing the money for their own purposes.
The trust’s principal remains untouched
With a spendthrift trust, the trust grantor names a trustee to oversee the management of the funds. The trustee also disburses funds to the beneficiary on a preset schedule set up by the trust grantor during their lifetime.
The beneficiary does not have direct access to the principal, and often more importantly, neither do any creditors of the beneficiary. This protects their inheritance from dissipation in the event of a bankruptcy or a court judgment against them.
Are there any negatives?
There may be. Some heirs liken spendthrift trusts to a form of “dead-hand control” from beyond the grave. That may be their perception, and they are free to reject any disbursements if they feel strongly enough about the matter.
The truth is that spendthrift trusts are not appropriate for every estate planning situation. But for those who need them, spendthrift trusts can solve estate planning dilemmas.