Whether you have a good understanding of estate planning or are just getting started, you may not be familiar with all of the types of trusts. A trust can play a vital role in an estate plan, helping make it much stronger. A spendthrift trust is a common tool used to protect assets while also ensuring beneficiaries get their inheritances. An estate planning lawyer can help you decide whether this type of trust is right for you.
Estate Planning Attorneys You Can Rely On
Making decisions for the future can be difficult. For this reason and many others, it’s critical to have the right support.
The estate planning lawyers at OC Wills & Trusts have the knowledge and tools you need to make the right choices for you and your family. We get to know each of our clients on a personal level to provide the absolute best advice and guidance.
When you’re ready to create an estate plan tailored to your needs, rely on the experienced lawyers at OC Wills & Trusts in Orange County, CA.
Understanding Trusts
Several legal documents make up a strong estate plan. Trusts are some of the most critical pieces of the estate planning puzzle.
A trust is an agreement that an individual, called a trustor, creates to give a third party, a trustee, rights to hold and maintain assets on behalf of a beneficiary. Several kinds of trusts exist, including:
- Revocable trusts
- Irrevocable trusts
- Testamentary trusts
- Special needs trusts
- Charitable trusts
Creating a trust and funding it with assets and property has several advantages. You, as a trustor, have control over planning for the future. Plenty of time and money can also be saved, as trusts help avoid the probate process. Additionally, at your passing, trusts allow your beneficiaries to receive their inheritances much more quickly and with less hassle.
You can create several trusts as part of your estate plan to satisfy your needs. An estate planning attorney can guide you in choosing the right type of trust and funding it as you wish.
What is a spendthrift trust?
Among the many types of trusts, spendthrift trusts are some of the most common.
A spendthrift trust — also referred to as an asset protection trust — disburses assets to the beneficiary in increments rather than all at once. These trusts serve to protect assets in the event a beneficiary has bad spending habits.
Spendthrift trusts also protect assets from the beneficiary’s creditors. This is because the assets belong to the trust, not to the beneficiary, and therefore, the beneficiary’s creditors would have no claim to these assets.
With a spendthrift trust, the assigned trustee is in charge of maintaining and overseeing the distribution of assets at the appropriate times, depending on the terms outlined in the trust.
Spendthrift trusts are excellent tools to ensure the beneficiary receives their inheritance without running the risk of misuse of assets.
Benefits of Creating a Spendthrift Trust
Spendthrift trusts are not for everyone, but an estate planning attorney may recommend creating one if your intended beneficiary:
- Likes to spend money
- Isn’t good at managing money
- May fall into debt at some point
- May not use assets as intended
- Has a disability, mental illness, or addiction
Essentially, when a trustor creates a spendthrift trust, they wish to leave the beneficiary with assets to ensure they’re taken care of in the future. However, for one reason or another, the beneficiary cannot be trusted to responsibly handle their inheritance if it is given to them all at once at the trustor’s passing.
Creating a spendthrift trust could be beneficial to your circumstances. Rely on a skilled estate planning lawyer to determine whether this is the right type of trust for you.
How Spendthrift Trusts Work
A spendthrift trust is created in a similar manner as other types of trusts; however, you include spendthrift provisions. You must detail who the beneficiary is and when they can begin to receive their inheritance. The schedule of disbursement is entirely up to you and could include:
- Monthly, Quarterly, or Annual Distributions: You can determine how often you’d like the beneficiary to receive their inheritance and the amount of each payment
- Dividend-Only Distributions: Instead of scheduled or lump sum distributions, you can instead distribute the dividends from your trust’s investments
- Specific Spending: For more control, you can choose when assets are distributed and for what purpose, for example, college tuition or buying a car
Choosing a trustee is critical when establishing a spendthrift trust. They are the party responsible for distributing assets and ensuring the terms of the trust are followed. A trustee may be a trusted family member or friend or someone in a more professional capacity, like a lawyer or accountant.
Once you’ve passed, the terms of the trust go into effect.
Get the Guidance You Need from a Knowledgeable Estate Planning Lawyer
Deciding what trust is right for you and taking the steps to establish one can be challenging. Fortunately, you can rely on qualified estate planning attorneys at OC Wills & Trusts.
To get started on your estate planning journey, contact us today to schedule a consultation.
