Reno Estate Planning Lawyer Explains the Benefits of a Spendthrift Trust

February 22, 2017

estate planning lawyerTrusts are an important type of agreement, characterized by trust and confidence. The agreement is made between a trustee and the person who created the trust, known as the grantor.  The trust agreement provides the trustee all of the authority needed to administer the trust assets and distribute the trust's income and principal to the beneficiaries named in the document. All distributions need to be made according to the provisions of the trust. A spendthrift trust is a specific type of trust with very useful benefits.

Common benefits of trusts in general

A trust, much like a last will and testament, can give you an opportunity to indicate now how you want your property to be distributed after your death. Conversely, unlike a last will and testament, a trust can provide additional protection for your assets in situations where one of your beneficiaries may need extra help in managing those assets. It is in a situation like that where a spendthrift trust can be very beneficial.

How is a spendthrift trust special?

A spendthrift trust is a special kind of trust because it affords control over the trust property through limitations on the beneficiary’s ability to access those assets. These restrictions are usually required when there are beneficiaries who could potentially squander those assets. Spendthrift trusts also protect trust assets from creditors that have claims against a beneficiary.

How does a spendthrift trust work?

When an estate planning lawyer drafts a spendthrift trust it will include restrictions on the beneficiary’s access to the trust principal. That essentially means that the beneficiary is not given access to the trust principal.  The beneficiary of a spendthrift trust cannot assign his or her beneficial interest in the trust to a third party either.  In addition, the beneficiary cannot pledge his or her interest as collateral for a loan.  Because of these restrictions on the beneficiary's ability to use and access his or her interest in the trust, the beneficiary's creditor's are unable to attach the beneficiary's interest in the trust.

Only the trustee can access the trust property

As any estate planning lawyer can tell you, only the appointed trustee will have direct access to the trust assets, which means the benefits of the trust can only be received through the trustee. This can be achieved through regular payments from the trust or through goods or services purchased by the trustee on behalf of the beneficiary.

Why do most people prefer spendthrift trusts

A spendthrift trust is most often considered when the grantor wants to leave cash or other property to a beneficiary who is not particularly good with money or is inclined to to becoming indebted to multiple creditors. Beneficiaries who are known substance abusers are generally also more susceptible to squandering an inheritance in order to satisfy their addictions.  Another example would be a beneficiary who is easily defrauded or deceived.

Things to consider in creating a spendthrift trust

An experienced estate planning lawyer can be very helpful in creating specific types of trusts, such as spendthrift trusts, because he or she knows precisely which terms must be included to make those trusts work the way they should. Your estate planning lawyer will first question you to determine what you need to accomplish, then your lawyer can help you determine whether a spendthrift trust is what you actually need.

Be sure to consider how the trust should end

Deciding to create a spendthrift trust is not the only decision you need to make. You must also determine how, and under what circumstances, the trust should end. For instance, what do you want to happen if your beneficiary’s circumstances change and he or she becomes entirely capable of managing the property on their own?  If the beneficiary passes away, there should be provisions about how that affects the terms of the trust, as well.

Let your estate planning lawyer help you fund your spendthrift trust

After you create the trust agreement, the next step that must be taken is to actually fund the trust. Funding a trust is simply a matter of transferring ownership of the trust property into the name of the trust.  What that means is, you can move cash in a bank account to a new account in the name of the trust or you can name the trust as a beneficiary of life insurance policies and annuities.
Attend a FREE Webinar today!  If you have questions regarding spendthrift trusts, or any other estate planning issues, please contact Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.

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