Spend Thrift Trust – Your Way to Protect Your Assets

Do you want to pass some of your assets to your heirs? Then, you should know how to protect your assets even if you opt to give them to your children or grandchildren. For an effective asset protection, you need to create a spendthrift trust. Maybe you will asked, what is this trust and how does it works. To expand your ideas about this topic, take this article as your guide.

The spendthrift trust, also known as asset protection trust, is a specialized structure wherein the settlors specify that the beneficiary cannot transfer any part of their interest in the trust. It means that beneficiaries have no control over their assets. They can’t also use these assets in satisfying their debt claims. It also allows the trust creator to provide controlled and limited support to another person who may not be accountable enough to manage a huge lump sum payment.

This asset protection trust prevents the beneficiaries from assigning or selling their interests and places them beyond the reach of certain creditors.  In this structure, the trustee is instructed not to provide large sums directly to the beneficiaries.   This trust arrangement does not only secures the beneficiaries from their own poor financial management. It also protects them from any creditors who may ask to reach the trust assets.

What is the main purpose of spend thrift trust? The answer is very simple. If a family includes a member who has great degree of free will, lack of financial discipline or debilitating illnesses and may be considered as irrational, then, an asset protection trust creates a perfect option to control. Mentally or disabled beneficiaries are known as the “spendthrift” and will be unable to access the assets of the family. However, they can access the assets if trustee approved to the spend thrift trust.

How does spendthrift trust works? In this structure, the beneficiaries receive an allowance of sorts. The trustee has the power to decide what payments are required as specified in the given trust agreement.  It is also essential to be realistic in setting the yearly distribution. Therefore, it should always cover basic necessities such as food, shelter and clothing. Some courts allow the use of spendthrift trust assets to fulfill awards of child support and maintenance.  To avoid abuses, most states use the doctrine of “surplus income” to permit creditors to take hold of the trust income that exceeds to support the beneficiaries.  This excess will be given to the creditor and paid directly by the trustee. Therefore, providing a prolific lifestyle through this trust type will not do any favor for your beneficiaries.

However, there are some settlors who prefer to create a self-settled spendthrift trust. It means that the settlors are also the beneficiaries.  Depending on your state, you can use this strategy to protect your asset.  But, most courts examine this case to ensure that the settlors do not attempt to circumvent the law by having someone else put their assets in trust for their own benefit.  Note: This type of trust, if revocable, may be pierced by the courts (i.e. bankruptcy, judgment debtor creditor, etc.) when settler is also beneficiary and trustee or has family member or close friend be trustee. It is advised trustee be unrelated compensated party.

To protect your assets, make sure that you know how to do it. With this spendthrift trust, you want to be assured that your assets and properties are in good hands.