Most parents continue to love their children regardless of any faults the children have. However, that does not mean that every parent feels comfortable leaving a large, lump sum inheritance to their children without any limitations. If you worry about your hard-earned money being squandered by your beneficiaries, you might consider creating a spendthrift trust.
In general, a trust is an estate planning tool that can help manage property during your lifetime and can supplement or replace a will after your die. However, one of the most important ways trusts differ from wills is that property that passes to beneficiaries from a trust does not have to go through probate. By avoiding probate, you can spare your beneficiaries the time, expense and public record associated with probate. There are many different kinds of trusts, and each one serves a slightly different purpose.
How does a spendthrift trust work?
A spendthrift trust limits the amount of money a beneficiary gets at one time and makes the money unavailable to most creditors. This can be beneficial if you have a child who is deeply in debt, who has substance abuse issues or who has poor money management skills. It can also be a beneficial option for parents looking to leave money to underage children because it can prevent the money from being spent irresponsibly on the child’s 18th birthday.
Like other types of trusts, a spendthrift trust is overseen by a trustee. The beneficiaries receive their inheritances in distributions. Often, the trustee must determine an appropriate amount for each distribution based on the details of the trust agreement. For example, you can require the trustee to distribute only the money a beneficiary needs to pay for living expenses.
Spendthrift trusts are irrevocable
Spendthrift trusts are an irrevocable type of trust. This means that in all but a few circumstances you will not be able to change the trust after it has been created. Also, you will not be able to take property back once you have put it into the trust.
At first glance, an irrevocable trust may seem risky. However, a spendthrift trust is designed to be a protection, allowing you to protect your money from being misused, while protecting your beneficiaries from themselves.