Spendthrift Trust

Understanding

Spendthrift Trusts

Protecting Assets and Preventing Mismanagement

A Spendthrift Trust is a specialized estate planning tool designed to protect assets from being squandered by beneficiaries who may lack financial responsibility, and it can also shield those assets from creditors. At SMITH | ASHCRAFT, we help clients establish spendthrift trusts that ensure your wealth is preserved and used according to your wishes.

What is a Spendthrift Trust?

A spendthrift trust is a trust that includes provisions preventing beneficiaries from using or transferring trust assets in a way that would be detrimental to their financial well-being. It is designed to protect the trust's assets from being misused or seized by creditors, and it gives the trustee discretion to manage the funds on behalf of the beneficiary.

Key Benefits of a Spendthrift Trust

Asset Protection

One of the main features of a spendthrift trust is that it prevents creditors from accessing the trust’s assets. This protection is valuable in cases where the beneficiary has debts, judgments, or legal liabilities. Creditors cannot seize assets held in the trust to satisfy those obligations.

Control Over Disbursements

The trustee has control over how and when assets are distributed to the beneficiary. This prevents the beneficiary from taking large amounts of money at once and potentially squandering it. The trustee can make decisions that are in the best interest of the beneficiary, ensuring that the trust’s assets are used wisely and responsibly.

Financial Security for Beneficiaries

A spendthrift trust can provide a steady stream of income to beneficiaries, ensuring they have financial support over time without the risk of blowing through all of the assets in one go. This is particularly useful for beneficiaries who struggle with money management or those who are unable to manage large sums of money due to age, illness, or addiction.

Protection from Poor Financial Decisions

For beneficiaries who may be impulsive or prone to risky financial decisions, a spendthrift trust acts as a safeguard against those behaviors. By controlling the release of funds, the trust protects the beneficiary from making potentially harmful or reckless decisions that could deplete their financial resources.

Safeguarding Inheritance for Future Generations

A spendthrift trust can help preserve a legacy for future generations. If the primary beneficiary passes away, the trust can be designed to continue providing for future beneficiaries, while still protecting the assets from creditors and poor financial choices.

Prevents Abuse or Exploitation

A spendthrift trust can protect a vulnerable beneficiary from financial abuse or exploitation by others. For example, if the beneficiary is elderly or has a disability, the trustee can ensure the beneficiary is not taken advantage of by individuals who might try to manipulate them into spending their inheritance improperly.

How a Spendthrift Trust Works

The Settlor (the person creating the trust) establishes the trust and designates a Trustee to manage the trust’s assets.

The Beneficiary is the individual or entity that receives the benefit of the trust’s assets, typically in the form of income or distributions over time.

The Trustee’s role is to manage the assets, make prudent investments, and distribute funds in accordance with the trust’s terms. The trustee has significant control over when and how much the beneficiary receives.

Limitations of a Spendthrift Trust

While a spendthrift trust offers significant protections, it’s important to note that:

• The Beneficiary Cannot Access All Assets Directly: The trust is set up to prevent the beneficiary from withdrawing funds or transferring assets on their own.
• It Doesn’t Protect Against All Claims: Some exceptions exist, such as claims from the IRS or child support payments.
• Must Be Properly Structured: To ensure the trust is legally effective, it must be properly created and maintained to comply with applicable state and federal laws.

Why You Need a Spendthrift Trust

If you have a loved one who struggles with money management, is involved in risky behaviors, or is at risk of being taken advantage of financially, a spendthrift trust can provide peace of mind. It helps ensure that assets are protected, managed appropriately, and used for the benefit of the beneficiary over time.

Why Choose SMITH | ASHCRAFT

Our attorneys specialize in designing and implementing spendthrift trusts tailored to your unique needs and the specific needs of your beneficiaries. We will help ensure your trust is legally sound, well-managed, and serves its intended purpose of protecting your legacy.



Contact us today to discuss how a spendthrift trust can protect your assets and ensure your beneficiaries are financially secure.