Creating an estate plan is often about ensuring that your executor respects your final wishes while also giving your loved ones certain benefits after your death. Despite these good intentions, there are times when unfettered access to large amounts of money might not be the best thing for your loved one. That is when spendthrift provisions in trusts can be beneficial for grantors in Coral Gables.
A spendthrift trust is a common estate planning tool that serves two common purposes: protecting your heirs from careless spending and shielding them from potential creditors. Our dedicated trust attorneys could help you understand when these provisions make sense as part of your plan.
A spendthrift trust is a modified form of an irrevocable trust. They are designed to restrict your beneficiary’s ability to use the trust funds in the future. This is accomplished in two ways: by limiting their access to the funds and barring creditors from seizing any assets.
In Coral Gables and elsewhere in the state, spendthrift provisions are only valid when they apply to both voluntary and involuntary transfers. In other words, you can only restrict a creditor’s ability to seize the funds if there are also limits on the beneficiary’s ability to use that money.
Using this type of trust offers several significant benefits. As you might expect, grantors, trustees, and beneficiaries differ on how helpful these restrictions are. That said, spendthrift trusts offer you the ability to exert some control and protect your loved ones in Coral Gables after your death. The following are some notable benefits of a spendthrift trust.
Creditors are barred from seizing funds from a trust with spendthrift provisions when they have a claim against your beneficiary. This is because, even though the money is intended for the beneficiary’s use, the funds belong to the trust until they are distributed.
A spendthrift trust is especially important in situations where you are concerned about the possibility of your heirs wasting their inheritance as soon as they receive it. The trusts are structured to provide beneficiaries with regular payments spaced out over time instead of a large lump sum. This avoids the risk of reckless spending.
Another common purpose of trusts is to shield assets should a beneficiary get divorced in the future. As with creditors, these assets are not considered to be marital property as the trust legally owns them. That means it is not subject to division during a divorce.
There are some potential drawbacks for a person in Coral Gables to include spendthrift provisions in your estate plan. First and foremost, beneficiaries have restricted flexibility compared to the provisions of a trust without these provisions. The limits on using the funds can be problematic in cases where the beneficiary needs to make an emergency purchase or pay unforeseen expenses. However, there are ways to draft a trust document to provide for these situations.
Spendthrift trusts are also irrevocable. Trusts cannot be easily revoked, and there are limitations on making changes once they are created and funded. However, it is common for a creator of a trust to set up the spendthrift provisions to take effect after they have died.
If you are concerned about the misuse or seizure of your assets after your death, the best way to protect your loved ones may be through a spendthrift trust. We could help you determine if this approach is right for you. Contact our Coral Gables office today to discuss spendthrift provisions with a knowledgeable estate planning lawyer.
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