Estate planning requires people to take a hard, honest look at their situations — and those of their heirs and beneficiaries. As you may come to realize, not all heirs may be able to manage their inheritances with ease.
Some people just are not financially savvy enough to manage the proceeds of a significant inheritance. For those and other situations, spendthrift trusts may fit the bill.
Who needs a spendthrift trust?
It’s often assumed that only profligate spenders require the restraint that a spendthrift trust provides. While it is true that the structure of a spendthrift trust can preserve funds for lifetime disbursements, that’s not the only reason for funding one.
Spouses’ actions matter, too
If your heir is married to an overspending or controlling spouse, you may worry that the spouse could browbeat your heir into accessing the funds and turning the cash over to them. This type of trust restricts access to the trust principal to only the trustee whom you appoint.
Some professions leave heirs vulnerable
If your heir is a doctor, lawyer or working in another industry that makes them at risk of litigation, they can benefit from spendthrift trusts. These trusts cannot be siphoned off to pay out settlements or judgments from a lawsuit.
Is a trust really necessary?
Only you and your estate planner can make that decision based on your particular needs and family circumstances. Learning more about the options you have can allow you to make the best decisions possible for protecting your heirs after you are gone.