Most of us know someone with spending problems. Money management issues can come from being financially immature. It can come from being in an unhealthy relationship where they have little to no say in their finances. There may be an addiction issue at play. Regardless of the reason, struggling with spending problems is far from uncommon. What happens, however, when you want to leave money to heirs with spending problems in your estate plan? It can be a struggle between wanting to leave them an inheritance and being afraid that such an inheritance would be quickly squandered. If you find yourself in your position, it may bring you some peace of mind to know there are options in estate planning that would allow you to leave your heirs an inheritance while limiting their ability to quickly spend away such a legacy.
Leaving Money to Heirs with Spending Problems
In reality, it may be true to say that many of us are not equipped to managing a large sum of money transferred to us all at once. This is especially true of those that already struggle with spending issues. If you want to gift an inheritance to your heirs, but worry about them receiving a lump sum that would be quickly spent away or simply mismanaged, you may want to consider a spendthrift trust.
A spendthrift trust is a way for you to protect your heirs from their own poor spending habits. The trust is established by transferring assets into it. You will appoint a trustee who will have the authority over how and when distributions of trust funds are made to trust beneficiaries. You can set the terms for such distribution in the governing trust document. The more detailed your terms established in the trust document, the more guidance the trustee has in order to make distributions in alignment and in furtherance of your goals for the trust and the trust beneficiaries. You can be very specific with the trust terms. You can include language that indicates limits to the beneficiaries control of trust funds as well as when distributions can be made from the trust, under what circumstances, for what purposes, and in what quantity.
A spendthrift trust not only protects your heirs from their own money management problems, but the assets held in the trust are protected from the beneficiary’s creditors. You see, assets held in the trust are not owned by the beneficiaries. They are owned by the trust. As such, the assets held within the spendthrift trust are protected from beneficiary creditors that may have been the result of a lawsuit, divorce, bankruptcy, and more.
Be sure to take care in who you appoint as trustee of the trust. They are the gatekeeper and manager of the trust. This is a role of great responsibility. You can select any trustee you wish as long as that person is over the age of 18. You may even want to consider hiring a professional firm or bank to act as trustee. Alternatively, you could appoint a trusted friend or family member to act as trustee.
Estate Planning Attorneys
Have questions about a spendthrift trust and how it can serve your estate planning goals? Reach out to the knowledgeable estate planning team at Jones, Gregg, Creehan & Gerace for more information. Contact us today.