So, you’re seeking information on building a trust! Perhaps, your legal heirs don’t have control over their spending! Maybe, you wish to protect your assets from your beneficiary’s creditors. No matter the reason, a spendthrift trust might be the right option for all such situations. Such a trust offers a slew of benefits to the beneficiary. Let’s understand what spendthrift trusts are and how they could help out.
What is a spendthrift trust?
First, let’s understand the parties of a trust. In any trust, there are three parties. The person who creates the trust is called the trustor. The trustor appoints one or more individuals to manage his trust’s assets. These folks are called trustees. The individual or individuals who derive benefits from the trust’s funds is called beneficiary or beneficiaries.
It’s a particular kind of irrevocable trust founded for the benefit of the recipient or beneficiary. This type of trust confers special rights on the trustee. The trustee or trustees usually have full control to make decisions on how the trust’s assets and funds will be managed and expended for the benefit of the beneficiary. It’s the trustee who sets determinations on what is good and what is bad for the beneficiary. In view of parameters set by the trustee, the monetary decisions regarding the trust’s assets are taken for the benefits of the recipient.
Advantages of spendthrift trusts
Lifelong benefits to the beneficiary
The main aim of creating any trust is to offer some sort of financial assistance to the beneficiary. However, spendthrift trusts present exclusive benefits and could be extremely useful in many cases. For example, if a person wants to pass on his wealth to his son, he could make a Will. In this case, the wealth could be squandered lavishly within a month and the beneficiary could be out of funds within no time. This is even more correct when the recipient or beneficiary has no control over his spending habits.
In such a situation, the creation of a Will serves no purpose. It’s here a spendthrift trust comes in handy. This type of trust gives special rights to the trustee. To curtail the recipient’s lavish spending habits, the trustee may limit the sum of money offered to the beneficiary each month. In this way, the trustee will ensure that the beneficiary enjoys lifelong benefits from the trust’s assets.
Protects the assets from creditors
It’s likely that a person has various creditors. However, the trustor, usually the father of the person may have debt-free wealth. If the trustor passes his wealth to his debt-ridden son, the creditors may use the son for their dues. In such a case, all of the assets will have to be liquidated to pay off the dues. While the recipient may get out of debts, he’ll have no money left for his subsequent expenses.
To avoid this kind of situation, the trustor may create a spendthrift trust and offer particular rights to the trustee/s. In accordance with their rights, the trustees will only give a small portion of the trust’s earnings to the beneficiary each month. The creditors will have their stake over that small portion only. They can’t claim anything over the trust’s assets. In this way, the assets of the trust are safeguarded from liquidation and seizure.
Concluding words
Spendthrift trusts offer particular advantages over any other type of trust. Protection of assets, lifelong financial support to the beneficiary and his descendants, etc. are some of the premium perks of creating this trust. If you want to enjoy these benefits, contact your lawyer to create a spendthrift trust.
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