If you are doing your estate planning, your business may not be complete without the addition of a special type of trust. Spendthrift trusts are often used as vehicles to distribute funds to beneficiaries who are not equipped to handle the trust principal on their own.
These trusts use hand-picked trustees to disburse funds according to predetermined schedules set by the trust grantors who fund the trusts. This allows them to help keep at bay their loved one’s worst inclinations and decisions.
Who might need a spendthrift trust?
Any heir or beneficiary who lacks the skills and experience to manage the principal of the trust can benefit from spendthrift trust oversight. They are also good choices for those who struggle with sobriety, gambling or other excesses and those in relationships with controlling spouses and/or friends.
But those are not the only circumstances where spendthrift trusts might be used. Beneficiaries in fields like medicine or law, where litigation is more common, might also appreciate the barrier of a spendthrift trust. After all, the funds cannot be tapped by creditors or attached by judgments.
Are there any drawbacks?
Sometimes beneficiaries resent this type of perceived “dead-hand control” over their finances. However, as the trust grantor, you may understand better than they how their lack of fiscal administration could erode the trust’s principal far too quickly.
It’s also wise to appoint unrelated trustees over the funds of beneficiaries to preclude any issues arising over the funds from marring an already convivial relationship. Choosing financial or legal representatives as trustees often makes the best sense.
