SPENDTHRIFT TRUSTS AND PROTECTION FROM CREDITORS

A spendthrift trust is a specialized type of irrevocable trust designed to limit the beneficiary’s access to trust funds, helping to protect both the beneficiary and the assets within the trust. Features of a spendthrift trust include:

• The Trustee’s Control: The trustee, who is responsible for managing the trust, has full control over how and when the trust funds are distributed.

• Limited Access for the Beneficiary: The beneficiary cannot access the funds directly or use them as collateral for loans, preventing reckless spending.

• Protection from Creditors: Because the funds are managed by the trustee and not owned outright by the beneficiary, creditors cannot seize them to settle debts.

What are the benefits of a Spendthrift Trust?

There are several important reasons why establishing a spendthrift trust might be the right choice for you and your heirs:

• Protect Your Heirs from Creditors:

• The trust assets are not considered the beneficiary’s property. As a result, creditors cannot access or claim the funds to settle any of the beneficiary’s personal debts.

• Protecting Assets from Divorce:

• If your beneficiary divorces, the assets in the spendthrift trust may be protected from being claimed as marital property, as long as the trust was established before the marriage. This protection will not apply to court awarded support.

Downsides to a Spendthrift Trust?

While we recommend spendthrift trusts, there are some negative factors:

• Relying upon the trustee:

• The beneficiary may find it difficult to access funds in an emergency, because the trustee controls distributions.

• Irrevocability:

• Once a spendthrift trust is created, it is typically irrevocable. This means you cannot modify or terminate the trust once it has been established, which limits your ability to make changes in the future.

Next Steps For A Spendthrift Trust

Establishing a spendthrift trust requires careful planning and attention to detail. Here are the key steps involved in creating one:

• Selecting a Trustworthy Trustee:

• One of the most important steps is selecting a responsible and trustworthy trustee who will manage the trust’s assets. The trustee will have control over distributions and must act in the best interest of the beneficiary.

• Carefully Drafting the Trust Document:

• The terms of the spendthrift provision must be clearly outlined in the trust document. This includes specifying how and when funds will be distributed, as well as any conditions for distribution.

• Consulting with an Experienced Attorney:

• It’s always best to work with an estate planning attorney to ensure that the trust is properly established and aligns with your goals. The attorney will also help you address any potential issues that could arise during the administration of the trust.