When a person has property or assets they would like to pass onto loved ones, their best option is to open a trust to manage their assets. However, there are many types of trusts, so it may be difficult to determine which type of trust is the correct one for an individual and their beneficiaries. One type of trust Texans should consider is a spendthrift trust. A spendthrift trust manages a person’s money and property, so the beneficiary of the trust is unable to sell or misuse the funds by receiving them all at once. By creating a spendthrift trust, the creator of the trust can limit a beneficiary’s access to the entirety of the assets at once—which is especially helpful if they are afraid they may spend the money unwisely.
What Is a Spendthrift Trust and Who Should Use One?
A spendthrift trust limits the ability of the beneficiary—the person who will inherit the property—to access the property or assets that are placed in their name. Instead of directly providing the beneficiary with the assets from the trust, the beneficiary receives the assets through the trustee, a third party who manages the trust. While the way the beneficiary receives the assets depends specifically on the trust, some options include regular payments from the trust, as well as the trustee purchasing goods on behalf of the beneficiary with the assets from the spendthrift trust.
In a spendthrift trust, the trustee is put in control of the trust assets and the benefits provided to the beneficiary. Because of this, individuals creating the spendthrift trust—called the grantor—should detail the specific power they want the trustee to have. The amount of power given to the trustee depends on the grantor and how they envision the role of the trustee. For instance, some grantors will provide the trustee with the power to withhold payments to the beneficiary if they get into debt or enter into other questionable behaviors. Other grantors will solely give trustees the ability to provide the beneficiary with the designated funds and not give them the power to make a determination about what the assets should be used for or if the benefits can be withheld for a period of time.
Who Should Use a Spendthrift Trust?
Spendthrift trusts are typically used when a person worries that their beneficiary will not use the property wisely or will get into financial trouble. Some reasons the grantor might believe the beneficiary cannot be trusted to receive the entirety of the assets upfront are if they are not good with money, might be easily deceived, or might easily obtain debt. In these cases, the grantor would rather have the trustee manage the assets and property in the trust and ensure the money is not wasted—however that is defined by the grantor.
Because there are many different types of trusts, individuals considering creating a spendthrift trust should contact an experienced estate planning attorney.
Contact a Houston Estate Planning Attorney
If you or a loved one is interested in creating a spendthrift trust, contact the experienced Houston estate planning attorneys at McCulloch & Miller, PLLC. With years of experience drafting wills, trusts, and other critical estate planning documents, we will create the documents that fit your family and your situation. Our attorneys understand that having the right estate plan can reduce stress about the future, and we are here to help. To schedule a free consultation and to speak with one of our attorneys, call us today at 713-333-8900.