Is a spendthrift trust right for your beneficiaries?
Your estate is an important legacy you can leave behind for your children. Because of the inheritance they will receive when you’re gone, they won’t have to struggle or worry about money. But as they grow up, you may have one or more children who have trouble keeping finances in order. How can you make sure your child won’t squander your assets when you’re not around?
Luckily, you have options to ensure your inheritance goes to good use. One way you can limit distribution is through a spendthrift trust. But how does this tool help take care of your children and your estate?
You make the rules for distribution
When you create a trust, you create rules for how it will distribute its assets. You appoint a trustee to make sure everyone follows the instructions you left behind. When you pass away, the trust starts distributing its contents based on your wishes.
Distribution can be limited in multiple ways
Spendthrift trusts differ in that they limit how much your beneficiary receives at once and how often he or she can draw assets from the trust. Distribution might include:
A monthly allowance, ensuring your beneficiary never has too much money at once.
Your trust might hold all the principal of your assets while it earns money, and only pay your beneficiary the income
The trust could be discretionary, meaning that the trustee must approve any distribution, and it can only cover costs for basic necessities like housing, schooling or health emergencies.
You get to make the rules for how the trust pays out. Even after your gone, you can make sure that your child doesn’t waste your inheritance.
Your money stays safe from your child and your child’s creditors
If you worry about your child’s spending habits, you may want to limit how much of your fortune they receive. A well-planned trust can not only protect your child from spending everything but can also keep your assets safe from creditors. Since your child won’t have access to the money, anyone coming after him or her for uncollected debt may not be able to claim the trust as your child’s property.
Protecting your family after you’re gone
If you built a fortune for your family, you don’t want it to disappear as soon as you pass away. Depending on how you want to control your inheritance’s distribution, you can use estate planning tools to protect it. Your child’s excessive spending habits won’t get in the way of you caring for them.