The Spendthrift Trust

The Spendthrift Trust: An Estate Planning Tool That Protects Your Heirs from Excess Spending

One of the primary goals of estate planning is to protect assets for our children and grandchildren. But sometimes, we also need to protect our children from themselves. The spendthrift trust is an estate planning tool that can do just that.

This type of trust limits a beneficiary’s access to its assets by granting incremental access to their inheritance. It leaves the trust assets under the control of an independent trustee, providing peace of mind if you’re concerned about your heir’s fiscal discipline.

What Are the Benefits of a Spendthrift Trust?

A spendthrift trust several benefits, including:

• Protection from creditors for beneficiaries
• Allows the grantor’s estate to avoid probate, provided the trust is established during their lifetime
• It gives you control over how much of their inheritance your beneficiary can spend at one time

If you’re worried that your heirs will mismanage their inheritance, or if you think they are a bankruptcy risk, you may want to set up a spendthrift trust as part of your estate plan.

Important Details of Spendthrift Trusts

• As with other types of trusts, you’ll need to choose a trustee for the spendthrift trust. This is an important decision because whoever you name will manage it per your instructions. You can appoint yourself as a trustee during your lifetime, but you’ll need to appoint another trustee who will assume responsibility for the trust after you pass.
• Unlike a trustee of a discretionary trust, who can decide when disbursements may be made and how much may be disbursed at one time, a spendthrift trust’s trustee must comply with the established disbursement provisions.
• A spendthrift trust is irrevocable, which translates into a higher level of protection against estate taxes and probate.
  • *Please be aware that the legal framework governing spendthrift trusts, particularly in relation to creditor protection, varies by state within the U.S. Certain states provide stronger protections than others, and specific legal research may be necessary depending on your location. We encourage you to consult with your financial advisor for more information. If you do not currently have an advisor, we would be happy to connect you with one.
• The spendthrift clause must be included when the trust is established to protect the assets in the trust from creditors.

Want to Learn More? Speak With an Advisor

Discuss a spendthrift trust with a professional advisor if you think a spendthrift trust could help your estate plan. Click here to request a no-cost, no-obligation appointment to discuss your financial goals and how they may be able to help you.