You have decided to leave $250,000 to your only son upon your passing because you want to ensure that he has what he needs in the future. The only problem is that your son has a gambling addiction and does not make wise financial decisions. The last thing you want to do is enable his habit and have him quickly blow through the money.
Enter the spendthrift trust, which is defined as a trust where the “beneficiary doesn’t have direct access to the funds.” Instead, a third party can handle those funds, paying them out when necessary and using their own discretion to distribute the assets. This way, you know they’re being used appropriately and not for gambling or other such activities.
How does a spendthrift trust work?
Spendthrift trusts are managed by a trustee. When you set it up, you’ll determine a payment schedule for your beneficiary. Your trustee will release funds only in the incremental payments on the schedule that you devised. Because of this, your beneficiary will not be able to blow through the money. Any creditors that he may have will not be able to access the trust to make up for outstanding payments. Setting up this trust will ensure that your loved one will benefit from your estate for many years to come.
You have to be careful when you create a spendthrift trust. It’s important that the trust reflects the uniqueness of the circumstances and clearly spells everything out. When you’re ready to set up the trust, it may help to seek out an experienced legal guide. Together you can establish a spendthrift trust that meets all of your specifications.
