VanAntwerp Attorneys, LLP
Phone: 606-618-0698

Protecting your irresponsible children with a spendthrift trust

You have worked hard all your life for what you have. It can be extremely frustrating to watch your children waste their advantages through irresponsible spending. Furthermore, it is quite possible that their poor spending habits will continue once they receive an inheritance from you, unless you take specific actions now.

One choice you can make is to create a spendthrift trust. This is a type of trust where the beneficiaries are not allowed to sell or pledge away an interest in the trust. The trust is also protected from the beneficiary's creditors until the trust property is distributed to the beneficiaries. In other words, the trust assets themselves are safe from your children's spendthrift ways, even if they declare bankruptcy.

Like all trusts, a spendthrift trust must be funded. One way that may maximize the protection from creditors is to fund the trust by making it the beneficiary of your IRA account. This is because inherited IRAs are often vulnerable to creditor claims, but no longer would be once placed in the trust. The required minimum distributions for the IRAs would still have to be made, but they would be based on the eldest beneficiary's life expectancy instead of your own.

One aspect of a spendthrift trust that many grantors appreciate is that the trustee can be given specific instructions or granted overall authority to make decisions in the beneficiaries' best interest, considering their spendthrift habits. While the conditions must essentially be reasonable, the terms of the trust or the authority given to the trustee can be effective in restricting payouts from being made for unwise or improper purposes.

A spendthrift trust can be an important part of a comprehensive estate plan. Keep in mind, however, that if you are considering setting one up, you are probably in a position where you will benefit substantially by working with an estate planning attorney. If your estate is wealthy enough where a spendthrift trust is desirable, it is not one you should risk by using a do-it-yourself estate plan or online form.

If you are interested in a spendthrift trust, another type of trust, or any estate planning strategy meant to protect your children, we recommend discussing your goals with an experienced estate planning lawyer. Your lawyer can provide a variety of options and help you develop a plan that accomplishes your goals effectively.

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