If you are a parent setting up a trust, you should understand the provisions that will meet your family’s needs. One of the unique needs of families is protecting a child with financial mismanagement issues. For example, one with an addiction or significant debt.
If this is your case, a spendthrift trust can be the most suitable option for your family. Here is how it can ensure your child benefits substantially from their inheritance:
A trustee will be in charge of the assets
When you draft a spendthrift trust for your child, you will appoint a trustee. This party will have control over distributions to your beneficiary. They will manage assets and distribute them to your child following your specific instructions included in the trust. For example, you can instruct them to pay your child a monthly income or use the funds to only cover certain expenses, such as housing, medical care or education.
Besides shielding your child’s inheritance from potential mismanagement, using a spendthrift trust safeguards assets from creditors. Since your child does not own the inherited assets (the trust owns them) and the trust restricts their ability to access funds or transfer their interest in the trust, most creditors will be prevented from seizing the assets. This makes it a reliable solution if your beneficiary is in significant debt.
Is it revocable or irrevocable?
A spendthrift trust can either be revocable or irrevocable. Creating a revocable one gives you more control, as you can change it at any time during their lifetime. An irrevocable spendthrift trust offers more protection against creditors.
If you believe your child will benefit more from a spendthrift trust, you need to learn more about what to include to ensure it fulfills your wishes.
