Similar to other trusts, spendthrift trusts ensure the protection of the assets of the beneficiary from being dissipated or misused. This type of trust is generally used to provide for the financial needs of a beneficiary who cannot manage their own affairs due to poor financial judgment or addiction. Continue to read the blog until the end to learn more here.
There are several key features of a spendthrift trust:
A third party establishes the trust:
A spendthrift trust is typically created by a third party, such as a parent or grandparent, for the perks of the beneficiary.
A trustee manages the trust assets:
The assets of a spendthrift trust are managed by a trustee, who is responsible for ensuring that the assets are used for the betterment of the beneficiary. The trustee has a fiduciary duty to the beneficiary, which means that they must act in the beneficiary’s best interests and use the trust assets wisely.
The beneficiary does not have direct access to the trust assets:
The beneficiary of a spendthrift trust does not have direct access to the trust assets. Instead, the trustee can distribute the assets to the beneficiary to meet their financial needs. This can help to protect the assets from being misused or dissipated.
The trust assets are protected from creditors:
The assets of a spendthrift trust are generally protected from the beneficiary’s creditors. This can be useful for individuals who have significant debts or are at risk of being sued.
The trust can be ongoing or can terminate at a certain point:
A spendthrift trust can be ongoing, meaning that it continues to exist until the beneficiary’s death or until the terms of the trust are fulfilled. Alternatively, the trust can terminate at a certain point, such as when the beneficiary reaches a certain age or achieves a certain goal.
Advantages of creating a spendthrift trust
There are several potential advantages to creating a spendthrift trust:
- Protection of assets: A spendthrift trust can help protect the beneficiary’s assets from being misused or dissipated.
- Management of assets: A spendthrift trust can provide the beneficiary with the financial support they need while still giving the trustee the discretion to manage the assets wisely.
- Protection from creditors: The assets of a spendthrift trust are generally protected from the beneficiary’s creditors, which can be useful for individuals who have significant debts or are at risk of being sued.
- Flexibility: A spendthrift trust can be tailored to meet the specific needs and goals of the beneficiary and can be ongoing or terminated at a certain point.