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Spendthrift trusts protect money and not-so-responsible heirs

You love your heirs – a daughter and son – unconditionally and want to provide for them as best as you can through an estate plan. You have no concerns about your daughter’s ability to handle money. She is reliable, mature, dependable and trustworthy. You only wish you could say the same about your son—a ne’er-do-well – who always lacked the responsibility gene and foolishly throws money around.

Despite the concerns, you want him, too, to inherit a portion of your estate. However, you remain nervous and concerned. This is where a trust with a spendthrift clause comes in handy. It not only will protect a beneficiary’s inheritance from creditors, but from themselves as well.

An effective tool with clear instructions

A spendthrift trust is an effective tool that protects your family’s money. It is any type of trust that includes provisions geared toward preventing beneficiaries from squandering an inheritance. People who want to leave significant amounts of money to heirs, but distrust them for their poor management skills, rely on spendthrift trusts.

A spendthrift trust includes clear instructions for the trustee, who manages the trust. The trustee has discretion regarding how and when distributions get made to beneficiaries. It also may include monetary limits as to how often and how much a beneficiary receives.

For example, a spendthrift trust may include orders to stop distributions to a beneficiary who has a gambling or substance abuse problem. Another scenario may include if your son falls into credit card debt. Creditors cannot come clamoring for the money within the trust because it is protected.

A spendthrift trust is a good defense mechanism that allows the principal to remain untouched and out of harm’s way from creditors. Your ne’er-do-well son may initially be unhappy about the situation. However, that may change in the years to come because the trust remains intact.

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