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What is a spendthrift trust?

On Behalf of | Sep 6, 2022 | Trusts

A spendthrift trust is created to preserve assets when your child or beneficiary has difficulty managing money. It is a tool that allows you to provide a secure financial future for your child. The trustee whom you appoint to oversee the trust will distribute funds to your child via incremental payments on a schedule that you devise. This ensures that your child will have the income that you intend for them without them spending it all at once.

When you set up a spendthrift trust, your appointed trustee will make sure that your wishes are followed, and your beneficiary receives the trust fund payouts according to your plan.

Reasons to set up a spendthrift trust

The most common reason to set up a spendthrift trust fund has to do with your child’s spending habits. For example, if your child has an addiction to alcohol, drugs or gambling, they would most likely end up draining the bank account that you leave for them much quicker than you would like. With a spendthrift trust, they will not be able to obtain an unscheduled payment. No matter how much they beg the trustee for more money, the terms that you set up for the trust must be followed.

There’s also built-in protection with a spendthrift trust fund. Creditors cannot garnish money from it, so your beneficiary will not lose the funds you intended for them. Plus, if you set up the trust as irrevocable, it is not subject to dissolution should your beneficiary ever file Chapter 7 bankruptcy.

Ensuring your child’s financial future

A spendthrift trust is a great tool that allows you to provide for your child without worry. With proper planning, the trust that you establish today can benefit your child for many years to come.