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The benefits of a spendthrift trust

On Behalf of | Aug 8, 2023 | Blog, Estate Planning And Litigation |

California residents may want to take measures to ensure that their family members are financially secure in the event of their passing. An estate planner can help create a will that designates assets to beneficiaries, including cash, bonds, stocks and other valuable items. However, the planner may have concerns about how the beneficiaries will use the funds. If there are worries about beneficiaries with irresponsible spending habits, creating a spendthrift trust might address these concerns.

The concept of a spendthrift trust

If an estate planner has $50,000 in cash and $250,000 in stocks and bonds, there are two common ways to leave these assets to a beneficiary. The first involves writing a last will and testament, while the other is to name the person as a beneficiary on a transfer on death account. In either case, the assets will be transferred to the beneficiary when the estate planner passes away. Once the person assumes ownership of the assets, the beneficiary will have complete control over them and can do whatever they want. However, some beneficiaries might not use the money responsibly.

A spendthrift trust provides an alternative for estate planners looking out for their beneficiaries’ best interests. With a spendthrift trust, the trust owns the assets. The grantor who draws up the trust can designate how the money is distributed. Returning to the previous example, the grantor may use the trust to disburse the $300,000 in increments of $$30,000 for 10 years.

Devising the trust

There are other potential upsides to creating a spendthrift trust. Namely, since the trust owns the assets, the beneficiaries’ creditors cannot go after what remains in the trust. This way, the beneficiary may work out a more reasonable plan to address debts without losing their inheritance. This example alone shows the many facets estate planning can entail.

Trusts must be legally binding under state law. So, estate planners must be sure that they are making a trust that adheres to state rules and regulations.

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