Forbes predicts a $30 trillion wealth transfer from the aging population. The median inheritance is $69,000, with trust fund transfers at $285,000. However, an Ohio State University study found that recipients spend half, and one-third exhaust it within two years, posing financial risks.

To address these challenges, individuals are exploring spendthrift trusts to secure their legacies. Spendthrift trusts act as safeguards, limiting beneficiaries’ spending and fortifying family wealth. Though this measure may curtail autonomy, it substantially enhances financial security.

What is a Spendthrift Trust?

A spendthrift trust designates a trustee, rather than the beneficiary, to manage financial decisions. The trustee oversees the trust assets, distributing funds according to predefined terms. These terms can be either limited or flexible, offering creators, or grantors, the option to leave distribution timing and amounts to the trustee or establish a fixed schedule, thereby preventing reckless spending.

The Spendthrift Clause

The spendthrift clause, a pivotal component, shields trust contents from creditors. Beneficiaries are safeguarded, as debts or civil judgments cannot tap into the trust assets.

Why would someone create a Spendthrift Trust?

Creating a spendthrift trust is a prudent choice when you aim to provide for a loved one while having reservations about their financial decisions.

Spendthrift trusts are advantageous for various individuals, including:

• Children – Parents, concerned about how minors or young adults handle inheritances, can use this trust to provide financial support while controlling when the funds become accessible.
• Individuals not adept with money – For those struggling with financial planning and impulse control, a spendthrift trust offers a reliable source of steady support.
• Vulnerable individuals – Those susceptible to external influences threatening their financial well-being find security and structure through a spendthrift trust, especially if they’ve been exploited before.
• Individuals with addiction disorders – A spendthrift trust acts as a safeguard, preventing beneficiaries from depleting the fund to support addictive behaviors like gambling or substance abuse.

Benefits and Drawbacks of A Spendthrift Trust

While these trusts offer shielding from creditors, steady income, and the preservation of generational wealth, they are not without drawbacks. Creating and maintaining them can be costly, ranging from $1,500 to $2,500, according to SmartAsset. Legal disputes may arise, especially if beneficiaries seek premature access to funds, leading to potential court challenges. The discretion vested in trustees also poses risks, emphasizing the importance of selecting reliable individuals or entities to manage these trusts.

Consult With Your Attorney

If you want to learn more about creating a spendthrift trust to provide for your loved ones, feel free to schedule a strategy session with us.  We can help you decide whether a spendthrift trust is right for your unique situation.