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How can someone craft a spendthrift trust?

On Behalf of | Aug 14, 2023 | Estate Planning

The years of accumulating your savings may give you satisfaction since you know your children will inherit your money someday. However, you might have reasons for one or more of your loved ones to not get their inheritance all at once.

Sometimes adult children get into tough situations that risk their inheritance, such as drug addiction, a bad relationship, substantial debt, or being the target of pricey lawsuits. Putting the inheritance of your children into a spendthrift trust may be the solution.

Language to use in a spendthrift trust

According to Kiplinger, a spendthrift trust is like any traditional trust. You put money or property in a trust and select a trustee who will manage the assets and pay beneficiaries. It is the language you use when creating the trust that makes it a spendthrift trust.

Basically, the trust documents include limits on how a beneficiary can spend proceeds from the trust. You can make sure an adult child does not use trust money for just anything. You may stipulate that your son or daughter use trust funds for shelter, clothing, medical care, or education. Your trust could also stagger funding based on thresholds met by your child.

Instructions for your trustee

A spendthrift trust can delegate different levels of authority to a trustee. You could give your trustee full power to decide how and when your beneficiaries get trust payments. Conversely, you may set conditions for your beneficiaries. Your trustee will follow your instructions when deciding whether or not to disperse trust funds.

Creating a spendthrift trust may take extra work to accomplish, but it can be of great benefit to a family member who needs help to avoid losing an inheritance.