While making a will is a simple way of directing how your assets are used after your death, some people need more complex estate plans. In some cases, it helps to set up trusts. Trusts enable you to ring-fence your assets so that they go to the right people. They often come with useful advantages like tax breaks. You can also use specialist products, like spendthrift trusts, to more precisely control how beneficiaries access and use your money after you die.
How does a spendthrift trust work and when is it a good option?
What Is a Spendthrift Trust?
When you put assets or money into a trust, you create a financial fund for one or more beneficiaries. These products have one or more trustees who manage assets and oversee regular and discretionary payments according to your instructions and/or the type of trust you choose.
While some trusts give more control to their beneficiaries, others restrict control and access to assets. A spendthrift trust would fall into the latter category. These trusts get extra protection because they are ring-fenced away from the beneficiaries. Beneficiaries have no or restricted control over the trust's income, assets, or management. So, they will not be able to take money out of the trust whenever they want to. They might have to get trustee approval to do anything other than take designated payments. They cannot dispose of core assets or make management changes. The aim here is to prevent beneficiaries from wasting or misusing the trust. This is useful if you worry that a beneficiary will not be able to manage an inheritance after you die.
When Should You Use a Spendthrift Trust?
Spendthrift trusts essentially stop beneficiaries from wasting or spending all of their trust money in an inappropriate way. They still get money from the trust, say in income or lump-sum payments; however, they cannot access the core capital in the fund. So, if you want to leave money to someone but know that they can't or won't be financially responsible, then a spendthrift trust is useful. It prevents them from wasting their inheritance.
This could apply to people who are irresponsible financially or who are vulnerable to manipulation by other people. Or, it could help protect the inheritance of someone with a history of serious debt problems or a gambling or drug addiction.
If you think a spendthrift trust may be useful, contact specialist wills and estate lawyers. They can help you decide if this is the best option for your circumstances. Reach out to a wills and estates lawyer like one at CJM Lawyers to learn more.