“Spendthrift” trusts are designed to protect their beneficiaries from somehow wasting the money that’s held in trust for them — while still making it possible for them to use the funds for their legitimate needs.
As more people are leaving large sums of wealth to their children, spendthrift trusts are becoming a popular part of estate planning. They’re often used to protect young heirs from their general naivete and inexperience in handling wealth. They’re also frequently used to make certain that an heir with an addiction — whether it’s to drugs, alcohol, gambling or shopping — doesn’t fritter the money away in a short period of time and end up destitute.
In Nebraska, at least, spendthrift trusts don’t just protect the money you leave behind from an heir’s inability to properly manage money — they also protect the money from your heir’s possible creditors.
Creditors cannot use a garnishment to directly intercept the interest the spendthrift trust produces or any of the distributions made from the principal before they are paid to the beneficiary. This generally keeps the funds out of the hands of creditors altogether — unless the beneficiary elects to pay someone out of liquid assets that he or she is given.
This provision can benefit not only an heir who can’t manage money but heirs who can handle the wealth quite well — but who may be the target of lawsuits due to their occupation. Doctors, lawyers, contractors and other professionals in highly-litigious fields commonly fit this description. Spendthrift trusts can’t be emptied out or attached with a lien after a loss in a personal injury case.
Spendthrift trusts are also frequently used for heirs who have special needs. By making them irrevocable and giving the trustee broad authority over the distributions, you can make certain that an heir with a disability is provided for — without endangering his or her entitlements to things like Supplemental Security Income or Medicaid. Irrevocable trusts are not counted as resources for these programs.
If you’re troubled when you think of your heir’s future after you are gone — don’t give up. Proper estate planning can help.
Source: nebraskalegislature.gov, “Nebraska Revised Statute 30-3847,” accessed April 26, 2018