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A spendthrift trust: an essential tool in estate planning

Protecting your assets remains a priority in estate planning. You want your heirs to reap from the benefits provided by your large estate and the abundant assets available. However, you do have some concerns related to one of your adult children.

Why? Because he is not good with money. Throughout his life, you and your spouse have had to bail him out financially time and time again due to one of his many poor decisions pertaining to money. You do not want this to happen anymore on your watch and with your money again. This is where a spendthrift trust addresses such a matter and proves to be a realistic solution.

Protects assets from creditors, heirs

What is a spendthrift trust? It is an essential tool that preserves the assets that you wish to bequeath your heirs and beneficiaries. It protects the assets from creditors as well as protects it from the heirs who may have a less-than-stellar relationship with money.

Perhaps your heir is an addict of some kind, whether it be related to drugs, gambling or even shopping. As a result, you want to protect that money as long as possible, and, sometimes, you need to keep it out of their hands.

As the “grantor,” you are the person who creates and funds the trust, which is overseen by a third-party person known as the “trustee.” The trustee manages the assets, handing them out according to the trust’s terms. Your heirs – or, in this situation, the “spendthrifts” — do not receive a lump sum because the assets are doled out in increments, assuring that these assets last a long time.

A spendthrift trust also keeps creditors at bay. If your heirs owe a great amount of money to creditors, those creditors will do their utmost to obtain that money. If your heirs receive those assets via inheritance from a will, creditors can immediately pounce and get as much of those assets as possible. However, with a spendthrift trust, your heir only receives portions of those assets.

An additional advantage of a spendthrift trust is that a trustee oversees it from inception until well after the death of the grantor. Other trusts cease functioning when the grantor dies, resulting in the distribution of the remaining assets. Not a spendthrift trust.

Consider a spendthrift trust as a solid option for estate planning. You likely will gain some satisfaction. Even though your heirs will have to wait a little longer to get those assets, they may be satisfied, too.