Creating an estate plan can be challenging. Spendthrift trusts are useful for individuals with children or grandchildren who may spend their inheritance too quickly or recklessly. A spendthrift trust limits your beneficiaries from having direct access to the assets in the trust. A qualified trustee manages the assets on their behalf.
If you are interested in creating a spendthrift trust in Pennsylvania, you’ll benefit from speaking with an estate planning attorney. Jones, Gregg, Creehan & Gerace LLP has a proven track record of helping many clients throughout Pennsylvania create comprehensive, strategic estate plans. We are here to provide you with the expert guidance and support you need to meet your estate planning goals.
What Is a Spendthrift Trust?
A spendthrift trust protects the assets owned by the trust from your beneficiary’s own spending habits and from creditors. With a spendthrift trust, you will not be disinheriting your loved one. Instead, they can receive money from the trust periodically, according to the terms of the trust. Your beneficiary won’t receive a lump sum payment of their inheritance after your death. If they receive a huge sum of money, they may waste it quickly. The trust protects the assets owned by the trust by securing them from creditors and their own spending habits.
Would I Benefit From a Spendthrift Trust?
You may benefit from creating a spendthrift trust if one or more of your beneficiaries struggles to manage money well. For example, suppose you have an adult child who has many positive qualities, but managing money isn’t one of them.
If they have a concerning relationship with money, it could complicate their inheritance. The last thing you want is for your hard-earned assets to be spent wastefully and quickly, leaving your loved one without assets. You may benefit from creating a spendthrift trust if your beneficiary has a troubling history with:
- Spending too much money
- Gambling
- Making reckless purchases
- Addiction to drugs or alcohol
Additionally, if you’re concerned about your beneficiary being involved in a contentious divorce and losing a significant portion of their assets, a spendthrift trust could help you protect them.
How to Create a Spendthrift Trust
Trust-based estate plans allow you to design an estate plan based on your unique needs and goals. Additionally, trusts will enable you to provide your loved ones with your assets after you pass away without the need for them to go through the probate process.
The creators of the trust are called grantors or settlers. The individuals who receive assets from the trust are called beneficiaries. The trustee, a qualified individual or entity, is responsible for managing the assets in the trust for the beneficiary’s benefit, ensuring they are distributed according to the terms of the trust.
Setting up an effective trust requires legal planning and skilled drafting. At Jones, Gregg, Creehan & Gerace LLP, we have in-depth knowledge of Pennsylvania trust laws and practices. We’ll use our knowledge to draft a trust following local laws and regulations.
After creating the trust, the grantor needs to transfer their assets into it. The grantor can fund the trust with various assets, including real estate, cash, stocks, and other types of property. Once the assets have been transferred into the trust, they no longer belong to the grantor, adding an additional layer of asset protection.
The Elements of a Spendthrift Trust
Every type of trust has its own requirements and key elements outlined in the trust agreement. Spendthrift trusts are no different. A spendthrift trust is a specific type created to limit a beneficiary’s access to the trust’s assets. Spendthrift trusts must include a clause restricting the beneficiary’s ability to sell, assign, or pledge their interest in the trust’s assets. This clause will protect the assets in the trust from being spent wastefully by the beneficiary and from being taken by creditors.
The trust should include a trustee who will hold the legal title to the trust’s assets and manage them in accordance with the trust’s terms. Appointing a secondary trustee is important in case the trustee is unwilling or unable to act as the trustee. The agreement should include a clause saying creditors can’t seize the assets to settle debts. Spendthrift trusts must be irrevocable, meaning they can’t be revoked or revised without the beneficiary’s consent. Irrevocable status protects the assets from the grantor and beneficiary’s creditors.
Distributing Assets through a Spendthrift Trust
When creating a spendthrift trust, you have significant control over how your beneficiary will receive the assets. You can specify exactly how the trustee should distribute the assets, or you can give discretion to the trustee. This flexibility allows the trustee to assess the beneficiary’s needs and other relevant circumstances before making distributions, giving you the power to ensure your assets are used wisely.
The Benefits of a Spendthrift Trust
Spendthrift trusts offer a sense of security, providing estate planners with peace of mind that their assets will continue to support their loved ones long after they are gone. These trusts give estate planners control over how and when the assets within the trust will be distributed, ensuring their wishes are carried out. Irrevocable trusts like spendthrift trusts also provide protection from creditors, including bankruptcy, lawsuits, and divorce settlements.
These trusts also provide asset protection, ensuring the beneficiaries continue to benefit from their inheritance for years to come instead of spending it all at once. They can be tailored to meet the grantor’s needs, providing the family privacy by avoiding court proceedings that make the trust a public matter. In some cases, they also offer tax benefits.
Contact an Estate and Trust Attorney in Pittsburgh
If you have concerns about one or more of your children or grandchildren spending the money in your estate unwisely, a spendthrift trust could help you protect your estate. The estate planning attorneys at Jones, Gregg, Creehan & Gerace LLP have extensive experience creating spendthrift trusts for clients in the greater Pittsburgh areas. Contact Jones, Gregg, Creehan & Gerace LLP to schedule a case evaluation with a skilled estate planning attorney.