For many people, protecting and providing for loved ones after they are gone is one of their most important estate planning goals. If you are among those people, the idea that the assets you pass down to those loved ones might be squandered will undoubtedly not sit well with you. If you are concerned about a specific beneficiary, or you just want an extra layer of protection from the possibility that an inheritance won’t be managed well, you might want to consider adding a spendthrift provision into a trust. Londonderry area trust attorney at DeBruyckere Law Offices explains what a spendthrift provision is and why you might want one in your trust.
Do You Worry about a Spendthrift Beneficiary?
Is there a beneficiary within your estate plan who never seems to be able to handle money and/or who spends way more money than he/she should? Most families have one – and they can be the source of much worry when it comes to estate planning. Sometimes the lack of financial acumen has an actual cause, such as an addiction problem or a mental illness. For other spendthrifts, there is no obvious reason why they don’t handle money well; however, it is a universally agreed upon fact that money management is not their strong suit. Understandably, the thought of handing a spendthrift beneficiary a sizeable inheritance likely makes you nervous. Fortunately, there is an estate planning tool that can help.
What Is a Trust Agreement?
At its most basic, trust is a relationship whereby property is held by one party for the benefit of another. The terms and provisions of a trust are reduced to writing in a document referred to as a “trust agreement.” Trusts are broadly divided into living trusts and testamentary trusts with the former activating during the lifetime of the Settlor (the creator of the trust) and the latter typically being activated at the time of the Settlor’s death by a provision in the Settlor’s Will. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
What Is a Spendthrift Provision in a Trust and How Can It Help?
One of the many benefits to using a trust instead of a Will to distribute an inheritance is the ability to retain a certain amount of control over how that inheritance is used. A spendthrift provision is a clause within a trust that is aimed at preventing the beneficiaries of the trust from squandering their inheritance. Very specific language must be used in a spendthrift provision; however, when drafted properly, a spendthrift clause will prevent a beneficiary from spending the trust funds frivolously as well as prevent borrowing against those funds or encumbering the funds in any way. A spendthrift clause can also prevent creditors of the beneficiary from accessing the trust funds to pay debts of the beneficiary. In short, a spendthrift trust wraps the trust assets in a layer of protection against both outside claims to the assets and against the beneficiary’s inability to handle money.
State laws govern most issues relating to trusts, including whether or not a spendthrift provision is valid within the state. In New Hampshire, NH Rev Stat § 564-B:5-502 governs the issue of spendthrift trust, stating “A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary’s interest.”
Contact a Londonderry Area Trust Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions about spendthrift provisions, or if you wish to discuss adding a spendthrift provision to your trust, contact a Londonderry area trust attorney at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
- Roth IRAs Can Be a Great Planning Strategy: Advanced - August 3, 2021
- It’s Important to Have a Coordinated Estate Plan - July 29, 2021
- Revocable Trusts Are Not Always Treated the Same as an Individual - July 27, 2021
