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

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

What Are the Benefits of a Spendthrift Trust?

A spendthrift trust a number of benefits, including:

• Protection from creditors for beneficiaries
• Allows the grantor’s estate to avoid probate, provided the trust is established during their lifetime
• 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 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 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.
• 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 an irrevocable trust, which translates into a higher level of protection against estate taxes and probate.
• 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.