What Are the Advantages of a Spendthrift Trust?

 Posted on May 23, 2023 in Estate Planning

Most of us have experienced situations in which we spend more money than we intended to. Whether we neglected our budget on vacation, overestimated our ability to manage expensive car payments, or let a love for shopping lead to significant credit card bills, overspending is something most people have done at least once in their lives.

If you intend to leave an inheritance to a loved one who tends to overspend, you may be worried about him or her misusing the inheritance funds or spending the funds too quickly. A spendthrift trust is a trust specifically designed for this type of situation.

Basics of Spendthrift Trusts in Texas

Many people assume that the only way to leave an inheritance to a loved one is through a will. Although wills can be useful in a variety of situations, they are also quite limited in their functionality. Trusts offer much greater control over how and when assets are distributed to beneficiaries.

To set up a spendthrift trust, you, the grantor, will place assets in the trust, designate your beneficiaries, and decide how and when those assets are distributed to beneficiaries. You will designate a trustee who oversees the distribution of the trust assets to the beneficiaries. During your lifetime, you can act as the trustee, but you will need to designate a successor trustee to take over the distribution of assets upon your death.

Who Should Use a Spendthrift Trust?

When you set up a spendthrift trust, trust assets are distributed to beneficiaries incrementally. Instead of the beneficiary receiving a lump sum that may not be used appropriately, funds are distributed gradually over time.

You may want to set up a spendthrift trust if you want to leave property or money to a loved one and:

• Your loved one is very young and not yet mature enough to handle a large sum of money

• Your loved one has a history of impulsive or irresponsible spending

• Your loved one suffers from a substance abuse problem, gambling problem, mental health condition, or personal problems that affect his or her spending behavior

• Your loved one is vulnerable to scams or could be easily taken advantage of

• Your loved one qualifies for need-based government assistance and you do not want to impair his or her ability to receive assistance

• Your loved one is vulnerable to lawsuits or creditors

Unique Benefits of a Spendthrift Trust

Unlike some other types of trusts, a spendthrift trust includes a clause designating the trust as the only owner of trust assets. This means that ownership of trust assets does not transfer to the beneficiary upon your death.

Furthermore, spendthrift trust assets are protected from judgments or creditors. These trusts are often used to distribute assets to individuals who work in an industry in which lawsuits are common. For example, if your loved one is a medical doctor, you could use a spendthrift trust to distribute assets to him or her without the risk of those assets being seized during a medical malpractice lawsuit.

Contact our Flower Mound, Texas Trust Lawyer

Spendthrift trusts are very useful for situations in which a lump sum inheritance is inappropriate. These trusts allow for the incremental distribution of funds to a beneficiary and protect the assets from creditors or judgments.

Call our Denton County estate planning lawyer for help setting up a will, trust, or other estate planning instrument. Call 972-724-3338 for a consultation.

Source:

https://www.kiplinger.com/retirement/estate-planning/603245/how-does-a-spendthrift-trust-differ-from-an-asset-protection