What Is a Spendthrift Trust?

There are a number of different types of trust funds you can create to leave assets to your heirs. One of the more limited types of trusts is called a spendthrift trust. This type of trust does not give the beneficiary direct access to any of the money in the trust. Instead, the trust pays out a set amount of money as specified. This could be a monthly allowance, yearly, or whatever period you state. If the beneficiary needs money right away, they have to submit requests to a trustee or panel of trustees. These trustees review the request and release funds if the request falls within the guidelines you’ve established.

Why Create a Spendthrift Trust?

If you believe the beneficiaries of your trust will use the money they receive responsibly, you may not need a spendthrift trust. However, you may be concerned that they will spend it all right away on irresponsible purchases, have a large amount of debt, or other reasons to want to protect the money. A spendthrift trust protects against this because the beneficiary can’t access any of the funds without approval. They may receive a set stipend, or they may be able to request funds as needed. There is always oversight, though.

There Are Also Legal Protections

Since all of the assets are owned by the trust, creditors have no legal right to any of the money. The trust isn’t in debt to them, the beneficiaries are. If your heir were to get divorced, their spouse likewise wouldn’t have any right to a cut of the trust’s funds. Lawsuits wouldn’t be able to claim any trust assets, either.

Some Example Situations

Here are a few ways the trust will protect your assets. Say the trust pays out a yearly stipend to the beneficiary. Shortly after receiving the money, they spend a large part of it on a new car. Towards the end of the year, they decide they want to go on an expensive trip. However, they don’t have enough money to cover it. They can request an extra payment from the trust, but the trustees can deny it.

On the other hand, if the beneficiary were to be injured and have mounting medical bills, the trustees could provide funds to cover these costs if you stated in the trust’s documents that emergencies could be paid for. You can outline these stipulations, so you still have some ability to direct your assets even after you’re dead.

Need help creating a spendthrift trust? Contact the offices at Michael F. Kanzer and Associates to schedule a consultation.

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