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When is a spendthrift trust a good idea?

A spendthrift trust is a trust over which the beneficiary does not have control. Rather, a trustee, which can be an asset management company or registered investment advisor, oversees the trust’s funds and assets and distributes them in a controlled manner. The trustee assumes control over the trust once the creator has made the trust irrevocable or died. If you wish to create a trust for your Florida estate, consider creating a spendthrift trust. 

According to The Balance, there are a couple of unique benefits to creating a spendthrift trust. For one, this type of estate planning tool is a unique way to protect your family’s money from creditors. Because your heirs essentially have no control over the money or assets in the trust, creditors cannot reach those assets in the event that a beneficiary defaults on a loan. For instance, say your estate is worth $5,000,000 and you leave instructions for your trustee to disburse to your son $300,000 on an annual basis. Your son purchases a home for $3,000,000, which he cannot reasonably afford. He faults on the loan. Creditors cannot come after your estate but rather, only collect the $300,000 he receives in disbursements.

The second greatest benefit of a spendthrift trust is its ability to protect heirs from themselves. Because your heirs have no control over the trust, they cannot spend any of the money before they actually receive distributions. Moreover, the trustee has the authority to determine how much money to disburse based on each heir’s individual needs. Finally, your beneficiaries cannot sell or give away equitable interest in the trust’s property.

The content shared here is not meant to serve as legal advice. It is for educational purposes only.

 

 

 

 

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