Imagine that you spent a lifetime creating an estate that is worth a considerable amount of money at the time of your death. Like many people, you probably devised an estate plan that allowed you to pass those assets down to loved ones and family members upon your death. You may even have been concerned about a particular beneficiary’s ability to handle money or their age at the time and therefore created a trust in order to better control the assets left to him or her. How would you feel if you knew that the beneficiary managed to rack up a substantial amount of debt that went unpaid and that the creditors then attached the trust assets in order to satisfy the debt? This can happen unless you plan ahead by creating a spendthrift trust.

A spendthrift trust operates in much the same way as any other trust. At its core, it is created and administered in the same way as all trusts; however, it includes a specific provision that prevents a beneficiary from assigning his or her interests to a third party as well as preventing a third party from claiming any interest in the assets as a result of debts owed by the beneficiary. Not all states recognize spendthrift trusts, but most do in one form or another. Because trusts are governed by state law, the precise language needed to create a spendthrift trust will vary by state. The goal, however, of a spendthrift trust is the same in all states. By creating a spendthrift trust, you can be certain that your assets will not fall into the hands of a third party due to the poor money management of a beneficiary.

The Law Offices of Richard B. Schneider, LLC is a member of the American Academy of Estate Planning Attorneys.

Tags: Estate Planning, spendthrift trust, Trusts

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