You are making your estate plans and have designated a substantial amount of money as an inheritance for your adult child. You have some concerns because they are not good at managing their money. Because of this, you may want to set up a spendthrift trust.
A spendthrift trust fund is a great way to take care of your heir if they happen to have a problem with excessive spending.
When you set up a spendthrift trust, you will appoint a trustee. This person will oversee the trust and distribute the funds on your terms once you have passed away. Doing things this way also safeguards the funds from your heir’s creditors. Since your heir is the trust’s beneficiary but does not own the funds held in trust for them, their creditors can not garnish those assets.
Benefits of spendthrift trusts
Here are some of the benefits of setting up a spendthrift trust:
- The assets from your estate will be protected from extravagant purchases
- Funds will be distributed in incremental payments, instead of paying them out in one lump sum.
- Probate can be bypassed, as long as the trust was established during your lifetime.
- Your beneficiary’s inheritance will be protected from creditors.
- You are providing financial security for your beneficiary’s future
If you establish the trust during your lifetime, you will be considered the trustee. You must make sure to name a successor to take over the role of trustee upon your passing.
By taking the time to set up a spendthrift trust fund now you can rest in the knowledge that you have provided for your beneficiary and ensure that the money is safe from being spent all at once.