Estate Planning Articles

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

by Alli Thomas

Aug 21, 2021

A spendthrift trust allows your beneficiaries only incremental access to their inheritance, rather than receiving it all at once (or at the whim of whomever you’ve appointed trustee).

One of the primary goals of estate planning is to protect our assets for our children and grandchildren. But sometimes, we need to also protect our children from themselves.

If this is a concern for you, establishing a spendthrift trust is one way that can limit your beneficiaries’ access to your assets after you’re gone.

 

What Are the Benefits of a Spendthrift Trust?

A spendthrift trust:

  • Provides your beneficiary with protection from creditors
  • Allows your beneficiary to avoid probate, provided the trust is established during your lifetime
  • Gives you control over how much of their inheritance your beneficiary can spend at one time

If you’re worried that your kids or grandkids will mismanage their inheritance—or if you think they are a bankruptcy risk—a spendthrift trust may be a good option to include in your estate plan.

 

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Important Details of Spendthrift Trusts

  1. 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 be responsible for managing it per your instructions. You can appoint yourself as a trustee during your lifetime, but you’ll need to make sure to appoint another trustee who will assume responsibility for the trust after you pass.
  2. 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.
  3. A spendthrift trust is irrevocable, which translates into a higher level of protection against estate taxes and probate.
  4. The spendthrift clause needs to be included when the trust is established to protect the assets in the trust from creditors.

 

Want to Learn More? Speak With an Advisor

If you think a spendthrift trust could help your estate plan, you should speak about it with a professional advisor. Browse our advisor directory to find one in your area or click here to request a no-cost, no-obligation appointment to discuss your financial goals and how they may be able to help you.

Request a no-cost, no-obligation advisor consultation today!

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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