One of the primary functions of estate planning is laying down the foundation for your family’s future. Wills, trusts and other estate planning tools can help make sure your family is provided for, even after you are gone.
However, what if you have family members that might spend their inheritance irresponsibly?
You have worked hard to build your wealth, and it is only natural to want it to last for as long as possible. A spendthrift trust can help you do that.
What is a spendthrift trust?
As the name suggests, a spendthrift trust helps protect the assets of a beneficiary from their own financial mismanagement.
It works by restricting the beneficiary’s ability to sell, give away or pledge their interest in the trust. A trustee will have discretion over distributions to the beneficiary, but you can outline rules of when and how to disperse the trust assets.
For example, you can specify that your child should only receive $10,000 per year. Your child will still receive financial support, but they will not get their entire inheritance in one go and potentially waste it all.
A spendthrift trust can also help protect your beneficiary’s inheritance from lawsuits and creditors, but it may not guarantee 100 percent protection in California.
When should you consider a spendthrift trust?
Not everyone is good at managing finances. Consider a spendthrift trust if one or more of your beneficiaries are displaying these signs:
- A history of poor money management
- Tendency to overspend or accumulate significant debt
- Substance abuse or gambling addiction
- Vulnerability to financial exploitation
- Lack of financial experience
- High liability risk, e.g., working in a high-risk job
In some cases, beneficiaries are simply too young to manage money on their own. If this is the case for your children, a spendthrift trust can help secure their inheritance until they are mature enough to handle their finances. It can also prevent other family members from exploiting your children for money.
Do you need a lawyer to create a spendthrift trust?
Creating any kind of trust can be a complex process, especially if you are unfamiliar with estate planning. There are a lot of things to consider, and you must also account for changes in circumstances as your beneficiaries grow older.
That is why creating a trust with the help of an estate planning attorney can be highly beneficial. They can guide you through the process, customize your trust and align it with your overall goals.