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Worried about leaving your wealth to an irresponsible spender?

by | Aug 9, 2021 | Estate Planning

You worked hard to amass your wealth over the course of your entire career. Maybe you have a child, grandchild or other potential beneficiary that hasn’t been making wise financial decisions or struggles with excessive debt, addictions or other conditions that make you worry that giving them a large sum of money upon your death would not be good for them. You still love them, however, and want to provide an inheritance for them. What are your options?

Spendthrift trusts

Spendthrift trusts are an estate planning tool used to benefit someone without directly giving them all of your money at once. For example, you can set up a situation where, upon your death, everything you wanted to give to your loved one will instead go to a special trust that someone you trust administers. Then, your loved one receives periodic payments from the trust, but they cannot access the principal.

Trusts in general are very flexible and adaptable. You and your attorney can specially design the terms of a spendthrift trust to fit your specific situation, in order to make sure that your beneficiary receives the support they need without endangering them or the principal of the trust.

How they help

The advantage of a spendthrift trust is that the principal of the trust does not actually belong to your loved one. Thus, it is kept safe from both your loved one’s spending habits and their potential creditors.

This means that, even if your loved one someday incurs a large amount of debt or declares bankruptcy, your wealth will not go to the creditors, but will remain there to continue to benefit your loved one until the principal is exhausted.

Not only would your loved one be unable to spend or give away the trust’s principal, but you could also design the trust to make it impossible for your loved one to contract away their right to future payments. This ensures that your wealth goes where you want it to go, and that no one can modify that arrangement.

Estate planning is an intricate process, and it requires considerable foresight to plan for future events in a way that protects the interests of your loved ones. A spendthrift trust is a great way to take care of your beneficiaries without risking the squandering or loss of your hard-earned wealth.