Trusts are legal entities created to preserve, invest and distribute resources. There are different kinds of trusts that people can create to leave a specific legacy and protect their loved ones’ interests.
A spendthrift trust is one of the more common kinds of trusts used in estate planning. A spendthrift trust imposes strict limits on how a beneficiary uses trust resources and typically prevents them from having direct access to trust assets. These are just a few of the kinds of beneficiaries who might benefit from a spendthrift trust.
1. A compulsive shopper
Someone who can’t seem to stay off of Amazon for more than a few hours or who gets into trouble whenever they go to an outlet mall might not manage inherited wealth appropriately. It is quite common for people to overspend after inheriting resources, which can rapidly diminish whatever inheritance they might have received. Other forms of addiction, like drug use and alcoholism, can also lead to testators creating a spendthrift trust.
2. An unmotivated young adult
A spendthrift trust can be a way to help cover someone’s basic cost-of-living expenses or motivate them to improve their station in life. The trust’s creator could allow someone to use trust assets to secure professional certifications or start a small business. When family members want to help someone establish a profession but don’t want to support their worst habits, a spendthrift trust can be a valuable tool.
3. An adult with a history of money problems
Sometimes, people don’t necessarily have an issue with substance abuse or dangerous behaviors, like gambling or shopping, but they still demonstrate an inability to manage their money. They may simply have a lot of debt or a spouse with bad habits.
Family members may question how someone spends their income as they never seem to have quite enough to balance their household budget. When a testator recognizes that members of their family struggle with financial planning or budgeting, a spendthrift trust can be a way to ensure there are resources to help them for an extended length of time.
Adding thoughtful provisions to a trust can be as important as naming an appropriate trustee. Thinking carefully about family circumstances is important for those who are hoping to leave resources for their loved ones in manageable and proactive ways when planning their estates.