As you may have heard, trusts can play a valuable role in an estate plan for a multitude of reasons. With a trust, a person transfers ownership of assets to the trust in order to fund the trust. Those assets form the trust principle. The trust is then managed by a trustee for the benefit of the trust beneficiary or beneficiaries. The terms of a trust can vary greatly depending on the type and purpose of the trust. It can dictate how and when assets are disbursed to the beneficiaries.
The many benefits of a trust can include avoiding probate as well as minimizing the impact of estate taxes. Furthermore, trusts enjoy a level of privacy not afforded to something like a will that goes through the public probate process. One of the biggest benefits of a trust, however, comes with the ability to dictate the terms of trust distributions as well as offering protection from creditors of the beneficiaries. Such protections are prominent features of spendthrift trusts, which we will discuss further here.
What to Know About Spendthrift Trusts
Do you have a family member that struggles with money management? Do you have a loved one that has creditors looming in the distance? Are you concerned about a loved one struggling with addiction? All of these things are not uncommon. Most of us have a family member or loved one that we want to provide for financially in our estate plan but worry that financial struggles will render any financial assistance useless and short-lived. The solution to this may be establishing a spendthrift trust.
A spendthrift trust can guard against poor spending habits of a beneficiary. It is, after all, named a “spendthrift” trust for a reason. People with bad money management skills tend to blow through lump-sum gifts and inheritances at breakneck speeds. With a properly structured spendthrift trust, you can dictate the terms of disbursements from the trust. The disbursements can be spaced out over time as opposed to a lump sum transfer that will not last long. You can also place conditions on disbursements, such as not having any money distributed from the trust until the beneficiary is enrolled in college or, if you have a loved one struggling with addiction, until he or she has successfully gone through a treatment and recovery program. You can state that disbursements should only be made for educational purposes. The options you have with this kind of trust can be seemingly endless.
A spendthrift trust also acts as a safeguard against creditors of trust beneficiaries. The assets held in the trust are actually considered to be owned by the trust, not by the beneficiaries. Beneficiaries do not have the ability to unilaterally access the assets held in a spendthrift trust. Because of this, creditors cannot try to recover outstanding debts of the beneficiaries by going after the trust principal.
Pittsburgh Estate Planning Attorney
Do you think a spendthrift trust might be a good addition to your estate plan? Talk to the estate planning attorneys at Jones Gregg Creehan & Gerace. Contact us today.