What is a spendthrift trust?
Updated: Sep 27, 2022
Planning for the future by creating trusts for your beneficiaries can offer you peace of mind regarding the distribution of assets, but what happens when a beneficiary displays poor or irresponsible spending habits? The New York City Bar notes that a spendthrift trust, which requires the consistent control of a trustee, could assist the beneficiary with his or her spending.
Creating a spendthrift trust is no more difficult than organizing other types of common trusts, but learning the basics may set your mind at ease.
About spendthrift trusts
A spendthrift trust can help one or more beneficiaries manage their money, along with the assistance of a trustee, who manages and has access to the funds. When you choose a trustee for this type of trust, you may want to choose someone with a history of positive financial responsibility and who can offer guidance to the beneficiary. This type of trust offers a variety of advantages to your beneficiary as well, restrictive as it may appear.
The advantages of a spendthrift trust
One of the main pros of this type of trust is that the money within is not available or accessible to your beneficiaries’ creditors. This includes credit card companies and other types of loans, such as car payments. The trustee when it comes to how much he or she can spend, and you can direct exactly how much money the trustee can release to the beneficiary for living expenses. This safeguards the money in the account for future use.
A spendthrift trust does not protect 100% of its assets. Your beneficiary may have to pay child support payments and federal tax liens from the trust before he or she can access the money.