There are often viable solutions to the circumstances we find ourselves in — if we simply know where to look for them. This is certainly true in the arena of estate planning, where knowledge equals increased peace of mind. For instance, what if you aren’t sure your heirs can properly manage your hard-earned wealth when you’re gone? How do you stop worrying about your loved ones being taken care of long-term? This is where you need to know about the spendthrift trust.

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A spendthrift trust allows you to safely pass your wealth to the next generation when you know they are not as financially savvy or responsible as you’d like them to be. Let’s take a closer look at the basics of a spendthrift trust:

What Is a Spendthrift Trust and How Does It Differ From an Ordinary Trust Fund?

A spendthrift trust is a trust account overseen by a trustee, such as an individual or corporate trustee, that controls the assets you leave, including hiring an asset management company, perhaps one structured as a registered investment advisor to invest the trust’s money after you’ve made the trust irrevocable or died. The beneficiary is forbidden from spending the money before he or she actually receives distributions and the trustee has the authority to determine what payments are necessary according to the trust agreement. Read more at The Balance…

As you’ve just learned, a spendthrift trust allows you to put checks and balances on your beneficiaries’ spending behaviors even after you’re gone.

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Although the name of this trust alludes to a person with poor spending habits, it can actually be of great benefit for all involved, as the following post describes:

Who Benefits From a Spendthrift Trust?

Because the law requires spendthrift clauses in a trust to be worded very specifically, it is best to work with an attorney who is experienced in the preparation of spendthrift trusts. An improperly-drafted trust may not offer any of the protections you intend.

If the trust is properly worded, it can:

  • Prevent a young beneficiary who is a legal adult, but who lacks the maturity to manage significant assets, from squandering their inheritance
  • Protect a trusting beneficiary from being swindled out of assets by con artists

Prevent a beneficiary’s spouse from asserting that trust assets are marital property, and claiming them in a divorce Read more at Estate Planning and Elder Law…

A spendthrift trust is basically a high-security trust that cannot be misused by either your beneficiaries, or people who would be happy to take advantage of them.

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On the other hand, a spendthrift trust may be an appropriate option even if you have financially responsible heirs. The following post explains how and why:

A “spendthrift” trust, typically an irrevocable trust under which a trustee has discretion over distribution of income and principal to a beneficiary, is exempt from the claims of the beneficiary’s creditors.  Instead of assets passing outright to a spouse or child during lifetime or at death, the assets can be directed to a spendthrift trust for the beneficiary.

An independent trustee with absolute discretion over distributions provides the greatest asset protection, but the trust also can be designed so that the beneficiary can serve as trustee without losing asset protection.  Essentially, a beneficiary potentially can have control over, and access to, the assets, but with valuable asset protection.  Considering the strong asset protection afforded by a spendthrift trust, even parents with mature, responsible children should consider using trusts for children in their estate plan.  Read more at Ward and Smith…

If you have a smart responsible heir that you trust to properly manage the property, you can appoint him or her to be the trustee.

Such estate planning matters need to be handled carefully since they have long-term implications for your beneficiaries. It is therefore advisable to work with an estate planning attorney who is well acquainted with this complex area of the law.

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If you are in North Carolina and need an estate planning attorney to help you establish a trust, look no further than Meek Law Firm. Jonathan Meek will see to it that you receive the peace of mind you deserve. Call us today at (704) 848-6335 or visit our website more information.