There are many different kinds of trusts that people create to protect their property or provide resources for the people that they love. How you structure the trust, who has access to its resources and what changes you may need to make to the trust help determine the best kind of trust for your situation.
One of the more common types of trust is a spendthrift trust. What sets a spendthrift trust apart from other trusts is that the beneficiary will not have direct access to trust assets. Instead, the trustee can make direct payments to educational institutions or creditors using trust assets. The beneficiary won’t be able to use those resources directly.
What are some of the situations in which a spendthrift trust is the best option?
1. When you have a family member with a health issue
Maybe you have a child with special needs. They may require careful structure to prevent the misuse of trust resources. If someone that you love struggles with a substance abuse disorder, it is natural to worry that they would take the inheritance you leave them and use it to feed their bad habits.
By having the trustee directly manage the distribution of assets for only specific purposes, the person creating the trust can protect those with a history of poor decision-making, problem gambling or alcoholism.
2. When you want strict control over the use of assets
You may have a very strong opinion about how you want your family members to use their inheritance. Even if your loved ones do not have an established history of substance abuse or other medical issues, you may want to prevent someone from squandering their inheritance.
If you only want someone to use their inheritance for specific costs, like educational expenses, healthcare costs or housing needs, a spendthrift trust can be a way of ensuring that someone uses their inheritance as you intend. Those hoping to help pay for a grandchild’s college tuition or first house might find a spendthrift trust a useful way of better structuring someone’s inheritance.
In some families, allowing beneficiaries to have direct access to inherited assets will not be an issue, but for others, it may be worthwhile to include instructions in the trust documents that will limit how someone spends their inheritance. Reviewing and adjusting your estate plan as your circumstances change can help you craft the most meaningful legacy possible.