A spendthrift trust protects an inheritance from a beneficiary with poor financial management.
Children in the same household are not clones.
Siblings have their own personalities, interests, and habits.
While one child may be responsible, another may be frivolous.
Some children grow up … and others just keep on having more birthdays.
You get the point.
According to a recent US News article titled “What Is a Spendthrift Trust?,” your estate plan should account for both.
Without appropriate precautions, one or more of your heirs will blow through their inheritances quickly.
What can you do?
A good option is to create a spendthrift trust.
You can place restrictions on the inheritance to ensure the money is not wasted by immature heirs.
With a spendthrift trust, you can place a trustee in charge of managing the inheritance, making distributions to or for the benefit of the trust beneficiary.
Work with a experienced estate planning attorney to outline the distribution rules for your spendthrift trust.
You may choose to require heirs to reach a specific age prior receiving any payments from the trust.
Another popular option would be to have your children reach specific life stages to receive installments.
For example, one installment could be made available upon graduation from college or technical school (or a stint in the military with an honorable discharge) and another at for their “first” wedding.
If your adult child has poor taste when it comes to relationships, you may also be able to use the spendthrift trust to shield funds from an ex-spouse or even a questionable current spouse.
By utilizing a spendthrift trust and keeping control of the money in the trust, you may also protect your assets from the creditors of those heirs who have entrenched themselves in debt.
Whether this benefit is available depends on your state of residence.
States have different laws regarding how much a spendthrift trust can protect assets from creditors.
Both Kansas and Missouri are great states for this kind of planning.
In fact, Kansas (but not Missouri) allows you to create a silent spendthrift trust, allowing you to keep the trust existence, let alone details, from even the beneficiary.
When creating a spendthrift trust, you should choose your trustee carefully.
The person you select should be able to utilize discretion and discernment when distributing the assets.
Your spendthrift trust will need a reliable trustee for it to function appropriately.
Oftentimes a combination of trusted family member or friend with a rock solid institutional trustee is a winning combination.
Reference: US News (June 28, 2022) “What Is a Spendthrift Trust?”