One of the aims of a comprehensive estate plan is to help individuals address the needs of their families.
Spendthrift Trust Overview
Not every beneficiary is capable of handling an inheritance responsibly.
Luckily, Florida law has a number of estate planning tools that an experienced estate and probate lawyer can use to help individuals provide for the needs of their families while at the same time addressing their particular foibles.
In the right circumstances, a spendthrift trust can be an effective estate planning tool to use.
As its name suggests, a spendthrift trust is frequently used to prevent a beneficiary from wasting his or her inheritance. Individuals who may need a spendthrift trust can include those with addictions such as gambling, drugs, or alcohol. Many times, those with such addictions are unable to handle their finances responsibly. In other instances, a spendthrift trust might be needed because a beneficiary is too young to handle his/her money, or it can be effective in protecting a particularly vulnerable person from being taken advantage of by others by limiting his or her access to his/her fortune. They can also be useful estate planning tools to use if a beneficiary has creditors.
Spendthrift trusts allow the trust creator (or “grantor”) to leave property to a beneficiary while at the same time restricting the beneficiary’s access to the money (or other property) in the trust. Instead of giving the money or other property in the trust to the beneficiary outright, a spendthrift trust is set up to disburse funds incrementally. The trustee of the trust (not the beneficiary) determines when to make the disbursements and in what amount, according to the terms of the trust.
The trust, not the beneficiary, owns the assets in the trust. Because the assets are not owned by the beneficiary, this affords another layer of protection.
The role of a trustee in a spendthrift trust—or in any trust for that matter— is a critical one. The trustee is responsible for managing the money in the trust and for carrying out the trust’s terms. Since it is the trustee who controls the trust’s assets and carries out your wishes as the grantor with regard to the trust, it is vital that you choose a trustee who is capable, reliable and trustworthy.
2 Benefits of a Spendthrift Trust
Having a spendthrift trust provides 2 distinct benefits.
- The trust protects a beneficiary from wasting their inheritance.
As noted above, a spendthrift trust limits a beneficiary’s access to the funds in the trust, thus preventing a “spendthrift” beneficiary from depleting his or her inheritance or support funds.
- A spendthrift trust protects trust assets from the beneficiary’s creditors.
Another benefit of a spendthrift trust is that it protects the trust funds from being reached by a beneficiary’s creditors. Because the assets in the spendthrift trust belong to the trust and not the beneficiary, a creditor of a beneficiary cannot force the trustee to pay the creditor what the beneficiary owes him. As long as the assets (whether property or money) remain in the trust, they are beyond the reach of a beneficiary’s creditors.
So long as none of the following 3 exceptions to the rule arise.
3 Exceptions to the Rule
In Florida, there are 3 exceptions to the rule that a spendthrift trust prevents creditors from reaching trust assets. Those exceptions are:
- An enforceable child support order or court order to pay maintenance to a former spouse,
- If the beneficiary owes state or federal taxes
- A judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust.
If any of these three situations exist, the spendthrift provisions will not be effective against a creditor.
Spendthrift trusts can be useful, but they must be properly drafted to be effective. If you are considering creating a spendthrift trust, consult with an experienced Florida estate and probate lawyer first.
The Estate Planning Attorney You Need.
If you have estate planning needs, protecting your family is just one phone call away. At the Law Offices of Samantha J. Fitzgerald, we create estate plans as individualized as you are. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Connect with us on Facebook or Instagram or call us at 954-580-3690.