You may wonder whether you should have a spendthrift trust. The answer may very well be Yes since a significant number of us have loved ones with problems handling money. In many cases, their financial instability is linked to other problems and may be accompanied by difficulty in keeping a job or maintaining a relationship. Not only does the absence of monetary skill present day-to-day issues both for this individual and other family members, but it may also complicate the process of estate planning.
This is when a consultation with a highly competent estate planning attorney becomes crucial. In Southeastern Massachusetts and Cape Cod, Surprenant & Beneski, P.C. is the law firm to call. We can help you quell your fears that your unstable beneficiary will deplete an inheritance far too quickly and be left unable to manage. As our wills and trusts attorneys will explain to you, this is precisely the situation spendthrift trusts have been designed to prevent.
Terms to Clarify Spendthrift Trusts
It is helpful to know the language of trusts in order to fully understand the concept:
- The trustor/grantor is the original owner of the assets who establishes the trust.
- The trustee is the party designated by the trustor to carry out her wishes. The trustor may name herself as trustee until her death at which point another named trustee will take over
- The beneficiary is the person who receives disbursements of assets from the spendthrift trust.
The Purpose of a Spendthrift Trust
A spendthrift trust is an estate planning tool created to protect an individual whose spending is often out of control. When our lawyers assist you by establishing a spendthrift trust, we enable you to keep the beneficiary from having direct access to the inherited funds. Instead, you will name one or more trustees who will control and manage these funds for the person who needs protection from his own worst instincts.
Who are the spendthrifts?
Spendthrifts are individuals, who for a variety of reasons, are not good with money and have a tendency to overspend. These individuals need help and guidance with money and their expenditures. Here are just some examples of those personalities who may fit into this category:
- Minors, or immature individuals, who don’t understand how to manage money
- Those with certain psychiatric disorders
- Someone who may be struggling with their sobriety or have an active addiction problem due to drugs, alcohol or gambling
- Those who purchase beyond their means and and spend all their cash or run up credit card debt on clothing, jewelry, cars, travel, and restaurants.
With a responsible trustee at the helm, money will be given to your beneficiary in amounts based on reasonable expenses. Creditors will not be able to tap the funds in the trust, so those assets, and your beneficiary’s future, are protected.
Important Exceptions: Debts a Spendthrift Trust Must Pay
Although a spendthrift trust protects your assets from being hijacked by creditors, there are debts the trust is required to pay. These include child support, spousal support, debts for food or shelter, and tax liens.
Various Ways a Spendthrift May Be Designed
You may direct the trustee you choose to pay third-parties directly, as required for necessary services. By paying the bills that come in from the landlord, educational institution, or grocer, the spendthrift will not have direct access to funds, except for smaller sums for personal purchases. Though this process may seem controlling, it can literally be a lifesaver for those with a propensity to squander.
The spendthrift trust can also specify other ways in which the grantor wants funds dispensed. She may arrange, for example:
- For a certain amount to be given to the beneficiary weekly or monthly
- For larger sums to become accessible once the beneficiary reaches a certain age or milestone (e.g. completes college or marries)
- For the trustee to dispense a certain amount annually at intervals and amounts at his discretion.
You should be aware that the trustee is bound by the stipulations of the trust, even if the trustor has passed away and his stated wishes go against the trustee’s better judgment.
Contact Surprenant & Beneski to Find Out Whether a Spendthrift Trust Is Right for You
Though spendthrift trusts can be enormously helpful in protecting assets and profligate loved ones, they are not right in every situation. You need a will and trusts attorney to assess whether creating such a trust is in your best interest and if so, to create one according to your wishes.
Because laws differ from state to state, it is essential to use an experienced attorney familiar with Massachusetts state law.