A spendthrift trust includes specific provisions regarding how a trustee may use its funds on behalf of the named beneficiaries. As noted by SmartAsset, the trustee may exercise broad discretion to spend money on an heir’s expenses so that he or she can maintain a particular lifestyle.
Individuals with young children, for example, may benefit from creating a spendthrift trust and naming a responsible individual to manage it. Heirs may not yet have the experience to manage an inheritance; a trustee, however, can pay their expenses for them according to the instructions detailed in the trust.
The trust may specify predetermined regular disbursements
Spendthrift provisions generally include specifying how much money a beneficiary may access. The terms of the trust may, for example, allow the trustee to provide a predetermined amount each month, year or during certain life events. The terms may also list items or assets that an heir may purchase with the proceeds provided.
If a beneficiary has shown a pattern of mismanaging money, he or she may not freely access the trust’s funds to support a potentially negative habit. The trustee, however, may pay for his or her expenses according to the trust’s provisions.
The assets belong to the trust instead of the beneficiaries
As noted by Kiplinger’s Personal Finance, a spendthrift trust may protect assets from a beneficiary’s personal creditors such as a student loan servicer or credit card issuer. If a beneficiary falls behind on payments and a creditor obtains a judgment, the court generally cannot garnish funds or property from the trust.
When individuals create a trust and transfer assets into it, they may replace their names on titles or deeds with the trust’s name. By carefully constructing and outlining the provisions concerning how a beneficiary may access funds, a spendthrift trust may protect assets and property from potential creditors.