One of the compelling reasons why people set up estate plans is to protect their assets and preserve their legacies. But what if you are worried about some of your beneficiaries’ abilities to prudently manage their inheritance?
If you are concerned about your beneficiaries’ financial judgment, there is help. You can get around this challenge by setting up a spendthrift trust.
What exactly is a spendthrift trust and how does it work?
A spendthrift trust is a trust designed to keep those assets out of the heir’s hands except according to plan. The trustee releases the funds incrementally per the trust’s instructions. This way, a spendthrift trust protects against the beneficiary’s poor spending habits, gambling addiction and so on. Because the funds belong to the trust, the assets are also protected from seizures over debts.
What else should you consider with a spendthrift trust?
If the sole reason for creating a spendthrift trust was because your beneficiary was young and (presumably) irresponsible, you may want to consider the idea that their circumstances may change as they get older.
You can even set up a trust in such a way that your heir eventually gains greater control over the funds. For example, you could arrange for assets to be held in trust until they turn 4.
Trusts are great tools for protecting your legacy
A spendthrift trust is particularly helpful if you have a young or financially imprudent beneficiary. Learning more about California estate planning laws can help safeguard your interests while setting up a spendthrift trust or other estate planning tools.