One of the biggest goals of estate planning is helping to create generational wealth. The assets you build today have the potential to benefit your children – and even your grandchildren – far into the future.
However, that means thinking ahead and anticipating potential financial pitfalls, including those your heirs may create for themselves. This is where a spendthrift trust can give you an extra layer of security and real peace of mind.
What’s a spendthrift trust?
Basically, this kind of trust allows you to set aside some or all of your assets at death into a legal vehicle that is managed and distributed on behalf of the designated beneficiaries. What’s distinctive about this kind of trust is that it removes the money from the direct ownership and control of those beneficiaries – which means that the assets are largely shielded from depletion by creditors’ claims.
When should you think about this kind of trust?
There are lot of reasons to worry about what might happen to the inheritances you leave behind, but here are the usual reasons people think about spendthrift trusts:
- An heir is still very young: It takes some maturity to handle a lot of wealth, and your youngest heirs may not have reached the point where they make good financial decisions. By restricting their access to the bulk of the funds you leave behind, you can make sure they have a consistent income without worrying that the money will be wasted.
- An heir has an addiction: Addictions take many forms, so you can have an heir who is addicted to drugs, alcohol, gambling, shopping or something else. If their poor financial choices have already caused them economic distress, you definitely want to consider an arrangement that will carefully control what they receive.
- An heir may be prone to divorce or lawsuits: Maybe you don’t trust your son’s wife to try to take half of everything you leave behind or you worry that your daughter’s small business will fail and leave her in debt. Putting your assets in this kind of trust keeps them safe from either kind of claim.
When it comes to estate planning, there are a lot of potential options that can meet your goals. Experienced legal guidance can help you learn more.