Trusts are one of the most powerful weapons that you can add to your estate planning arsenal. A trust is a legal vehicle that allows you to place assets in control of a chosen third party. Upon your death or incapacitation, the third-party trustee distributes funds as you have directed. Creating a spendthrift trust can help you direct assets to heirs such as children in a way that encourages productivity and decreases the risk that they will deplete their trust funds in a matter of years instead of a lifetime. With the help of an experienced estate planning professional, you can engage in a highly personalized trust creation process, including a spendthrift trust. I have written the following blog posts to provide an overview of some of the advantages of creating a spendthrift trust.
Attorney Tom McDowell is an experienced Kansas estate planning attorney who can guide you through the trust creation process. Call attorney McDowell now at (316)-633-4322.
How a Spendthrift Trust Works
A spendthrift trust is in many ways an ordinary trust. Like all trusts, you are creating a legal device that allows your assets to be overseen and distributed by a third-party trustee. In a typical trust situation, your heir can not only spend the trust payments he or she is scheduled to receive each year, but can also use the trust’s assets as collateral for loans.
As an example, imagine you left $10 million to your daughter in a trust that is scheduled to pay her $500,000 per year. In a normal trust situation, she could not only spend the $500,000 yearly payment but could also use the remaining trust assets as collateral to purchase a $12 million beach home. Sadly, the trust could be devoured if she defaulted on that beach dream house. When you created your trust, you intended for her to receive a prorated income for life, not for her to spend the entire trust amount all at once. A spendthrift trust prevents precisely this sort of frivolity.
In a spendthrift trust, a trustee—either an individual or an asset management company—makes decisions about how trust assets are distributed after you die. Using your wishes as a guide, the trustee makes decisions about the size and timing of trust payments. This allows the trust’s principal assets to continue to grow untouched. Because the trustee has complete control over the trust’s principal, the principal cannot be used as collateral by a beneficiary.
If you have a spendthrift trust, your daughter could still try to purchase her dream beach house, but the bank could only go after her yearly income of $500,000, and the remainder of the principal would remain out of the creditors’ reach. I should note that you cannot name yourself as a beneficiary of a spendthrift trust to keep yourself from spending your assets down and to protect those assets from creditors—public policy justifications prevent this sort of trust creation.
If You Need Estate Planning Help, Contact the Law Office of Tom McDowell
You have worked too hard to lose your assets to the government or free-spending beneficiaries. Creating a trust can help you protect your assets for the future. As discussed above, a spendthrift trust can help you protect your assets and your beneficiaries simultaneously. If you have questions about spendthrift trusts or other estate planning questions, call an experienced estate planning attorney today. Tom McDowell has the experience to help you through this challenge and to guide you through the estate planning process.
Attorney Tom McDowell is an experienced Kansas adoption attorney and can walk you through the complex steps you will need to take to bring a child into your life. Call McDowell Chartered today at 316-269-0746 to discuss any one of many types of adoption with a full-service adoption firm.
McDowell Chartered
725 N. Main Street
Newton, KS 67114
Phone: 316-269-0746