When doing your estate planning, one financial vehicle you might consider learning more about is a spendthrift trust.
Who would need to fund one and why would they choose this kind of trust? Certainly, not everyone will need this type of trust for their beneficiaries, but for those who do, it can be a very handy tool to use.
Why it might be necessary
If you have relatives for whom you intend to financially provide after you leave this world, you may be concerned about their abilities to manage a large sum of money without any boundaries. Perhaps they have proven themselves to be fiscally irresponsible in the past or are married to someone who is.
Below are some other reasons for funding a spendthrift trust:
- Your beneficiary is likely to be a defendant in a lawsuit. Attorneys, physicians and other health care workers are frequently the defendants of sometimes baseless litigation. Spendthrift trusts cannot be accessed to fulfill a judgment.
- There are addiction issues. A much-loved beneficiary can suffer from addiction to gambling, drink or drugs. You don’t want your hard-earned cash to fund their misery.
- They are still young. Experts say that the human brain doesn’t stop fully developing until a person is well into their 20s. That free-spirited teen may eventually grow into a responsible adult but meanwhile, protect them from their foibles.
Reasons why you might not want to fund a spendthrift trust
Beneficiaries who are locked into getting specific amounts on a predetermined schedule can start feeling like victims of “dead-hand control,” where their deceased loved one attempts to control them financially. Of course, they are always free to refuse the funds.
What you do with your money is up to you and a spendthrift trust can be a legally and financially sound option.
