When doing your estate planning, sometimes you can run into a conundrum. You want to provide an equitable share to all your heirs. However, you know that leaving a large lump sum of money to one or more children or grandchildren could be their undoing.
The fact is that not all people are good with money. Some may just lack the financial acumen needed to invest wisely and may burn through the funds investing in get-rich-quick schemes designed solely to separate them from their inheritance. Others may be addicted to drugs or alcohol and will wind up living a dissolute life or perhaps even overdose. Still others may be subject to lawsuits from creditors or may have married someone who is likely to usurp their funds for their own purposes.
A spendthrift trust could solve your problems
Spendthrift trusts are ideal when you don’t want one or more of your loved ones to have direct access to the money. Instead, you can appoint a trustee to disburse the funds according to a set schedule that you devise. Disbursements can even be contingent upon an heir being gainfully employed or living a sober lifestyle. However, trust grantors who are too rigid with the conditions can foment ill will in the hearts of their beneficiaries, so that should be considered as well.
Trusts of all types are a good way to protect generational wealth. But spendthrift trusts have additional provisions that essentially protect the beneficiaries from their worst inclinations or from having the funds depleted by litigation or creditors. For instance, supposethat you have a grandson who is a surgeon. One slip of the knife can open him up to a lawsuit that could potentially wipe him out financially. But, with a spendthrift trust in place, the principal is protected from any claims.
Choosing a trustee
It’s generally recommended that you don’t appoint one family member to be the trustee over another one’s spendthrift trust. Doing so is a good way to cause needless resentment and friction between siblings or a parent and child.
Your estate planning attorney can provide valuable guidance on how to set up a spendthrift trust.