You and your spouse have worked hard all of your lives. You’ve given your kids everything they could have wanted and more. Unfortunately, because they’ve been so fortunate, they haven’t learned how to properly handle money. Saving hasn’t been a priority for them, nor has sticking to a budget.
You want to pass on your wealth to your children when you’re gone. However, you’re concerned that they’ll spend all of the money on frivolous purchases rather than using it as a nest egg for the future.
If you’re in this position, you’re not alone. That’s why spendthrift trusts were created. A spendthrift trust is managed by a trustee of your choice — either a corporate trustee or an individual — based on the provisions you designate. The beneficiary of the trust (your child) receives distributions from the trustee only as you’ve designated in the trust agreement.
Besides being able to control how your money is distributed to your children, a spendthrift trust also prevents creditors from getting any money that hasn’t yet been distributed. Therefore, if you leave your child $1 million in a spendthrift trust to be distributed in annual increments of $50,000 and he or she has managed to rack up hundreds of thousands of dollars in credit card debt, the creditor can’t come after the entire value of the trust — just what has been distributed to your child.
If you’re contemplating a spendthrift trust for your child or another heir, a California estate planning attorney can answer all of your questions and help you determine whether this would be the best choice for your specific situation as well as what you should look for in a trustee.
Source: The Balance, “How a Spendthrift Trust Can Protect Your Heirs From Themselves,” Joshua Kennon, accessed May 02, 2018