Estate Planning Articles

The Spendthrift Trust

by Retirement Tips

Mar 28, 2024

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.
  • 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.

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Retirement Tips

Retirement Tips is an educational blog dedicated to helping workers and retirees become more knowledgeable about retirement and financial planning.

We want to help readers learn more about their retirement investing options, programs like Medicare and Social Security, and difficult-but-important topics like long-term care and estate planning.

Our goal is to help you make more informed decisions when it comes to your retirement and to make it easier for you to connect with an advisor in your area should you need professional financial advice.

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