Spendthrift Provision in a Trust May Save Assets from Creditors

From talking with friends, family members, or colleagues in Anaheim, you are probably familiar with the concept of using a living trust as part of an estate plan. What many people do not realize, however, is that there are countless trust provisions that can be utilized to accomplish your unique goals.

One such example is a spendthrift provision.

A spendthrift provision or spendthrift trust allows a trustee total control over the trust assets, while applying them for the benefit of a beneficiary. The advantage of using this type of provision is that it keeps the assets out of the reach of the creditors of the beneficiary. When should you think about using this type of trust?

Consider the following six scenarios:

1. The trust beneficiary is poor with handling money and finances. By utilizing a spendthrift provision, the trustee can retain control over the assets, while still allowing the beneficiary to receive the benefits of the trust.
2. The trust beneficiary is suffering from an addiction to drugs, alcohol, or gambling. While in the throes of addiction, a beneficiary may waste some or all of the trust assets. If the beneficiary later becomes sober, he will likely regret these poor choices.
3. The trust beneficiary may become involved in a divorce. Many clients express fear that a child’s future spouse could somehow take control over their child’s inheritance in the event of divorce. With proper planning, this situation can be avoided.
4. The trust beneficiary is facing possible bankruptcy. A properly drafted and executed spendthrift trust should protect the trust’s assets from being reached by creditors of the beneficiary during bankruptcy proceedings.
5. The trust beneficiary may become involved in a lawsuit. If the beneficiary has a higher-than-average risk of becoming involved in a lawsuit, by virtue of his occupation or due to high-risk behaviors, a spendthrift provision can reduce the risk that trust assets are reachable if a lawsuit is initiated against the beneficiary and lost.
6. There is risk that the trust beneficiary may face issues with creditors. If the beneficiary receives the trust assets outright, they will likely become reachable by his creditors.

Choosing the appropriate trust provisions for your situation requires the guidance of an experienced legal professional. If you are trying to create an estate plan and want to learn more about creating a trust that is right for you, call our office today to schedule a consultation.