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Spendthrift trust advantages

On Behalf of | Oct 24, 2023 | Estate Planning

Estate planners may wish to provide for their heirs and beneficiaries. Drawing up a last will and testament that is legal under New York law could be an effective way to transfer assets after the estate planner passes away. However, concerns may exist about the beneficiary’s ability to manage money. In such cases, devising a spendthrift trust could be the better approach.

Spendthrift trusts explained

A spendthrift trust allows a grantor to devise a way to have better control over their money after they pass. Cash or other assets would go into a trust managed by a trustee. The trustee oversees the administration of the funds per the terms of the trust.

One possible example of a spendthrift trust would be the deposit of $250,000 in cash, dispensed at $25,000 per year for ten years, and $250,000 in I Bonds that cannot be cashed before maturity. The trust may include exceptions under certain situations, such as emergencies.

Spendthrift trust preventive measures

A spendthrift trust allows estate planning steps to help protect beneficiaries from their inability to manage money. Such may be the case when the beneficiary is young and immature. Also, some beneficiaries could be at risk of being taken advantage of by others. The trust’s rules might prevent such a situation from occurring. Third parties may discover an immature heir’s inheritance and sell the heir on investment schemes or other dubious opportunities. A trust may bar the use of funds for such things.

Setting up a trust could be more costly and involved than writing a will. However, the added measure could be worthwhile if the process helps preserve a beneficiary’s inheritance and protects their best interests.