Did you know a spendthrift trust can be established for the benefit of a person who is often unable to control his or her spending? A spendthrift trust gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. The beneficiary is often a child or a grandchild, although this type of trust can be created for any individual.
You may wonder why you would create this type of trust as a part of your estate plan. One of the main benefits of this type of trust planning is that creditors of the beneficiary generally cannot reach the funds in the trust. This is because you, together with your estate planning attorney, will create a protection that ensures the funds are not under the control of the beneficiary.
Your estate planning attorney will often set up this trust to ensure it becomes irrevocable upon your death or incapacity. In either of these events, your chosen trustee will then have the ability to manage the trust with the best interest of your beneficiaries in mind. Often, this includes being able to financially support your child or grandchild for items that surround his or her health, education, maintenance, and support. The flexibility and sole discretion given to your chosen trustee is critical to ensure your trust can reach your goals. This authority to your trustee ensures we are able to protect your money for child or grandchild because he or she has no expectation of a monetary inheritance.
It is important for you to choose your trustee of your spendthrift trust carefully. You need to consider someone who understands his or her fiduciary duty to ensure the assets held in trust are managed in a sustainable way to protect your loved ones, indefinitely if possible. Through the trust administration process, your estate planning attorney can provide critical guidance to your chosen trustee so he or she understands the duties and responsibilities inherent in this role. Best practice is also to make sure that your trustee knows in advance what his or her responsibilities will be and has the opportunity to ask you questions to ensure your wishes are followed.
Bear in mind that creating your spendthrift trust with your estate planning attorney is just the first step. Making sure that it can work the way you want it to in the future is equally critical. What we have found, in our years of experience, is that clients fail to fund their trust. Whether they buy a new piece of property or open a new bank account, they forget to title, or fund it into their trust. Unfortunately, this means that when you need the trust to jump into operation, at your death or incapacity, the money that needs to be in place to protect your beneficiaries is not there. While it may still be transferred into the trust, it will not be the seamless process you envisioned.
We know the idea of not being able to leave an inheritance outright to a child or grandchild at your death can be a difficult topic to discuss. This is one of the reasons why we want you to work with an experienced estate planning attorney who can help you navigate the estate planning you need in place to reach your goals as well as be able to assess the pros and cons of your decisions. We encourage you not to wait to schedule a time to meet with Attorney Roth to discuss this important issue for yourself and your family.