Did you know a spendthrift trust is a trust that can be created for the benefit of a person who is often unable to control his or her spending? A spendthrift trust can give an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary who is normally a child or a grandchild. Creditors of the beneficiary generally cannot reach the funds in the trust, and the funds are not actually under the control of the beneficiary. This is because the trust normally becomes irrevocable upon the death of the person creating the trust.
This is a critical planning tool to discuss with your estate planning attorney so that you can ensure it can operate the way you want it to. For example, the trust provisions may provide for a monthly stipend to pay for the child or grandchild’s monthly necessities. It could also be designed to pay for occasional distributions by the trustee to the spendthrift beneficiary’s college education, vocational training, or to buy the spendthrift beneficiary a home. This residence, however, will remain owned by the trustee and is merely available for the spendthrift beneficiary’s use if he or she needs a residence.
In choosing the best type of spendthrift trust, you, as the creator, may need to consider many different factors that could affect the trustee’s authorized distributions for the child or grandchild. As you discuss these factors with your attorney, consider these seven discussion points:
- The child or grandchild’s chronic health and medical needs.
- The child or grandchild’s age
- The intended duration of the trust
- The marital status of the child or grandchild’s parents or legal guardian
- The other financial resources available to the child or grandchild
- The assets that will fund the trust, income producing or growth oriented
- Any substance abuse issues experienced by the child or grandchild
- Whether the child may qualify for governmental benefits such as Medicaid for children
Trustees of irrevocable trusts typically have certain duties to inform and report to beneficiaries without being prompted to do so by a beneficiary. The trustee’s duty to inform and account includes, but is not limited to, giving the beneficiary a copy of the trust instrument and an annual accounting of the trust assets’ performance.
We know this article may raise more questions than it answers. Do not wait to schedule a meeting in our firm to discuss them. We look forward to planning with you to protect those you love.