It seems like every family has one: a person who cannot manage their money or who spends money in a loose or even reckless manner. They may be well-intentioned, but Californians who wish to leave such individuals assets from their end of life estates may fear that the beneficiaries will squander their inheritances and dispose of their accumulated wealth in an irresponsible manner.
For those estate planners who wish to build in safeguards to the assets they wish to leave to financially reckless relations, spendthrift trusts can help. Like a normal trust a spendthrift trust holds the trust assets for the beneficiaries. However, unlike other forms of trusts the beneficiaries of a spendthrift trust cannot sell or relieve themselves of their interests in the trust. The trust assets are held by a trustee and since the beneficiaries have no way to control or dispose of their trust interests those interests are out of the reach of the beneficiaries’ creditors.
If and when the spendthrift trust ends and the beneficiaries receive their interests in the trust assets those assets may then be assessed by the beneficiaries’ creditors for the repayment of their debts. However, they are protected while the trust is maintained under the control of the trustee.
Spendthrift trusts are only one of many options an estate planner may pursue to protect the inheritances that they wish to pass onto their loved ones. Readers who want to learn more about estate planning and whether spendthrift trusts may help them realize their end of life financial intentions are asked to bring their questions up with their estate planning attorneys.