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Why many California residents use a spendthrift trust

On Behalf of | Nov 7, 2023 | Estate Planning |

Trusts are a common part of many estate plans. Many people don’t realize there are several kinds of trusts, including a spendthrift trust. This popular option allows grantors to more specifically manage how their beneficiaries receive their inheritance.

What makes a spendthrift trust different

Like other types of trusts, a spendthrift trust has a person who sets up the trust (the grantor), a trustee who manages the trust, and a beneficiary who receives the assets. The grantor sets up the trust as part of their estate planning process.

With most trusts, the assets within the trust belong to the beneficiary once the grantor passes away. This is different from a spendthrift trust. In this instance, the trust itself owns the assets held within. The trust as a whole does not pass into the beneficiary’s name. The beneficiary will still receive the assets. However, this typically happens over a period of time. For example, the grantor may write into the spendthrift trust that the beneficiary will receive $1,000 per week until they turn 30 years old. At 30 years old, the beneficiary then receives the full trust. Another example would simply have the beneficiary receive $1,000 a month for the remainder of the trust.

Reasons to use one

One benefit to a spendthrift trust is that the trust itself owns the assets. This means that if the beneficiary owes debts, the trust does not count as one of their assets. Debtors cannot collect the trust as a way to pay the beneficiary’s debts.

Another reason many grantors choose a spendthrift trust is to help the beneficiary manage their inheritance. Many grantors have concerns about leaving a large lump sum to a beneficiary with a history of unhealthy financial habits. By giving them small amounts over time, the grantor hopes to encourage safer spending behaviors.

Fortunately, spendthrift trusts are unique. When a grantor creates one, they can specify a timeline for the trust that meets their own desires. These trusts are an essential part of a detailed estate plan. They help California residents make their wishes for their estates clear so their estates are smoothly managed.