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Does this sound appealing to you? Many states allow creditors to attach a beneficiary’s interest in a spendthrift trust to pay awards of alimony, child support, IRS obligations, and debts owed to creditors that supplied food, housing or other basic living necessities to the beneficiary. We know that in this time, more than ever, it is important to have peace of mind about your estate planning. This field is for validation purposes and should be left unchanged. We understand how important the health and safety of our clients, and our staff is. The truth is that most families have at least one. Creating a spendthrift trust for your spendthrift beneficiary does not prevent you from leaving lump sum inheritances to other beneficiaries; however, you can use the same trust to distribute assets to other, non-spendthrift, beneficiaries as well if you so choose. Pages, articles, paragraphs, forms, letters, images, photos, and other content on this site may not be copied, excerpted, reprinted, republished, broadcast, rewritten or redistributed. A spendthrift trust is a good way to provide lifetime income or financial support to a beneficiary that lacks the ability to manage money or property. Revocable Trusts: Do They Provide Asset Protection? For information about Pennyborn.com and how to advertise on this website Contact Us. If you have additional questions or concerns about how a spendthrift trust fits into your estate plan, contact the experienced Waukegan living trust attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment. First and foremost, instead of just handing the beneficiary a lump sum of money, the inheritance is transferred into the trust and a Trustee is appointed to administer the trust. Distributing Trust Assets to Your Loved Ones, Six Steps for Dealing With Loans During California Estate Administration, Six Ways that Creating a California Living Trust Helps with Incapacity, Trustees: Consider a Section 17200 Petition for Help With Unresolved Issues, Law Office of James F. Roberts & Associates, APC. It is a violation of state and federal law to use a trademark without permission. How Can I Include Philanthropy in My Estate Plan? Failing to do so is akin to throwing your money down the drain. While we are not in the office, we are still here to answer your questions, conducting consultations for review, and initial appointments by phone and email during normal business hours. The trustee has total control over how the trust funds are spent. I am also an attorney but I would never make a tax, business or financial decision without his extraordinary advice and counsel. Although it may not be easy to admit, acknowledging that one of your beneficiaries cannot be trusted with a large sum of money is crucial to protecting your assets within your estate plan. However, you can indicate that they must be used for the benefit of the beneficiary. One trust could prohibit distributions of principal, while the other could grant the trustee discretion to distribute principal to the beneficiary spouse. Depending on the heir, it may be a good idea to avoid leaving a lump sum inheritance. Copyright © 2009 - 2020 Pennyborn.com. A spendthrift trust is a specialized type of living trust that allows you to do several things which will help prevent your spendthrift beneficiary from frittering away his/her inheritance. Your use of this site does not create an attorney-client relationship. If you are considering using a spendthrift trust as part of your estate plan or for asset protection purposes, consult an attorney. The creditor is not a child or spouse who is entitled to support payments. The Trustee of a trust has a number of important duties and responsibilities, starting with the duty to protect and manage the assets you transfer into the trust – and to do so with the best interest of the beneficiaries of the trust in mind at all times. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason. Sometimes the lack of financial acumen has an actual cause, such as drug or alcohol addition, a gambling problem, or mental illness. What are Self Settled Spendthrift Trusts? Call our office number or email us and we will respond as quickly as possible. Another type of trust sometimes used by parents concerned about the ability of their children to handle a large inheritance is a, In a spendthrift trust, the person making the trust, called the, The majority of U.S. states do not allow a settlor or grantor to place his own property in trust and name himself as beneficiary to protect his assets from creditors. During the creation of your estate plan, you will likely be required to make numerous decisions. As states try to encourage more investment within their jurisdiction, more states may enact these types of asset protection laws in the future. In addition, as the Settlor (creator) of the trust, you have the ability to create trust terms that will dictate when disbursements are made to the beneficiaries and the amount of those disbursements. A spendthrift trust does not allow the beneficiary to transfer, assign, sell or pledge his interest in the trust to his creditors or others. If the beneficiary is a spendthrift because of an addiction or mental health issue, you could even use the trust terms to limit the beneficiary’s direct asset to assets and insist that the funds held in the trust be used for the beneficiary’s treatment. The primary difference between the two is that a living trust activates during the lifetime of the Settlor, or creator, and a testamentary trust activates at the time of the Settlor’s death through a provision in the Settlor’s Last Will and Testament. Depending on the heir, it may be a good idea to avoid leaving a, While creditors generally cannot attach a beneficiary’s interest in a spendthrift trust, there are some exceptions, and the exceptions vary based upon state law. To find the laws governing trusts in a particular state, go to our page on, The following is a list of some of the advantages of a spendthrift trust:1. Fortunately, there are steps that you can take to prevent creditors from depleting the assets of your trust. One trust could give the beneficiary spouse a testamentary or lifetime limited power of appointment, while the other trust would pass only to the beneficiaries named in the trust. Can Creditors Attach a Beneficiary's Interest in a Spendthrift Trust? The beneficiary does not have any ownership of the trust assets. Creating a spendthrift trust is one common solution. Some of those decisions may not be easy to make and some may require you to be brutally honest with yourself. The creditor was not providing a basic life necessity, such as food or shelter. A Waukegan living trust attorney at Hedeker Law, Ltd. explains how a spendthrift trust may provide a solution that does not put your assets at risk. For details on when a creditor can collect against a beneficiary's interest in a trust and sample spendthrift trust language, see, Spendthrift trusts are complex instruments that must be properly drafted, funded, and administered to be enforceable and accomplish the goals of the person making the trust. The beneficiary cannot demand that the trustee make distributions to him. Once you have admitted that a loved one has a problem handling money, you must then decide how to handle that revelation within your estate plan. However, you can indicate that they must be used for the benefit of the beneficiary. This provision protects trust assets because the trustee of the trust retains control over the property—even after you have passed away. We are complying with this order by continuing to work from our homes. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. You could, for example, include terms that only allow trust assets to be used to pay required living expenses of the beneficiary. Generally, for a spendthrift provision to work, the following six conditions must be met: The trustee has total control over how the trust funds are spent. To be effective, the trust must contain very specific language. INFORMATION ON THIS SITE, INCLUDING ARTICLES, ESTATE PLANNING FORMS, AND THE ESTATE PLANNING BLOG, DOES NOT CONSTITUTE LEGAL, FINANCIAL OR TAX ADVICE. One such method for doing so is to use a spendthrift provision in the trust document. Deciding Whether to Establish a Spendthrift Trust for Your Child, Grandchild or Partner, Your use of this website constitutes acceptance of our, For information about Pennyborn.com and how to advertise on this website, A spendthrift trust is a type of trust used in estate planning and asset protection because it provides certain protections from the trust beneficiary’s creditors and can prevent the beneficiary from accessing the trust principal. The trust prohibits the beneficiaries (the people who benefit from the trust) from spending or borrowing against the trust funds. Dean’s knowledge is very comprehensive and current. A spendthrift beneficiary is someone who never seems to be able to handle money and/or who spends way more money than he/she should. Other times there is no obvious explanation for a beneficiary’s inability to handle money. An irrevocable spendthrift trust is a type of trust that either limits or altogether prevents a beneficiary from transferring or assigning his or her interest in the income or the principal of the trust. Lincolnshire Estate Planning Lawyers Explain How a Life Insurance Trust Can Help, Lincolnshire Estate Planning Lawyers Answer 5 Common Questions, Lincolnshire Probate Attorneys Provide Tips for the First-Time Executor. A long-time resident of north suburban Lincolnshire, Dean has more than 35-years experience helping business owners and families grow, protect and pass on their hard-earned money through tax planning, estate planning and investment management services. Either way, when you know a beneficiary cannot responsibly manage his/her finances you must take steps to protect the inheritance you have earmarked for that beneficiary. Pennyborn.com is not a law firm and is not a substitute for a lawyer. 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