You might think of a trust as a tool for the incredibly wealthy, but it might be useful for your family circumstances even if you’re a middle-class, working American. Some people create special trusts when they have family members who don’t manage money well.
Whether they have run several small businesses into the ground, gone bankrupt or struggled with addiction, family members who don’t handle money well can pose unique challenges for someone creating an estate plan.
You don’t want to fund their next failed business venture or bender, but you also don’t want to disinherit them. A spendthrift trust is a valuable tool if you want to leave an inheritance for someone who has a terrible record with personal finances.
A spendthrift trust separates the beneficiary from the property
Sometimes, the trustee who oversees a trust is the only person who is also a beneficiary of the trust. They have ultimate control over what happens to the assets and how they utilize them.
In a spendthrift trust, the trustee is not a beneficiary. They are someone with a history of financial responsibility who oversees the management of trust assets or the distribution of them to beneficiaries. By not giving the beneficiaries direct control over trust assets, you eliminate the risk of them misusing or squandering their inheritance.
How do you structure a spendthrift trust?
There are multiple ways to approach a spendthrift trust. You might require that the beneficiary meet specific life goals before the trustee can turn over assets to them. You might limit how much they can receive in a year. You could also limit what the trust will pay for, allowing them to make claims for the payment of housing bills, educational expenses or similar necessary costs.
The exact structure that you use and how you limit access to resources will depend on what you want to leave behind and the unique issues that face one of your potential heirs. The bigger the inheritance and the more concerning their personal history, the more careful your planning should be. A trust for your estate plan can have many benefits for those concerned about the decisions their loved ones will make with an inheritance.