Most families have at a spendthrift – that person who, for a variety of reasons, simply cannot manage money well. When it comes to estate planning, a spendthrift beneficiary can create quite a problem if you are concerned that passing down a sizeable inheritance would only lead to the money being squandered. Fortunately, there is an estate planning tool that can help. The Long Island attorneys at Eghrari Law Firm explain how a spendthrift trust might fit into your estate plan.
What Is a Spendthrift Trust?
A spendthrift trust is a type of trust specifically designed to manage and protect a beneficiary’s inheritance from being squandered or claimed by creditors. The key feature of this trust is a “spendthrift clause,” which limits the beneficiary’s ability to access the trust’s principal directly. Instead, a Trustee manages the trust, making distributions according to the terms outlined in the trust agreement, effectively allowing the trust to serve as a safeguard for beneficiaries who may not be able to handle a large inheritance responsibly.
Protecting Beneficiaries from Themselves
One of the primary reasons for including a spendthrift trust in your New York estate plan is to protect a financially irresponsible or vulnerable beneficiary from wasting their inheritance. If you have a child, grandchild, or other loved one who has a history of making poor financial decisions or struggles with issues such as addiction, gambling, or mental health issues, a spendthrift trust can prevent them from accessing their inheritance all at once. A spendthrift trust lets you structure the distribution of assets in a way you want. For example, the trust can allow for staggered distributions, or the Trustee can be given discretion to make distributions based on the beneficiary’s needs or life circumstances.
Shielding Assets from Creditors
Another important benefit gained from a spendthrift trust is that it protects the trust assets from the beneficiary’s creditors. Under New York law, creditors cannot access the assets in a spendthrift trust as long as they remain within the trust and have not yet been distributed to the beneficiary. This is particularly important if your beneficiary has a history of debt, faces potential lawsuits, or is otherwise vulnerable to creditor claims.
The Role of the Trustee
In a spendthrift trust, the role of the Trustee is crucial because they are responsible for managing the assets, making distributions to the beneficiary, and ensuring that the terms of the trust are followed. As the Settlor (creator) of the trust, you can appoint anyone you want to be the Trustee, including a family member or friend; however, it is important to remember that the Trustee will manage the trust assets and control when and how funds are distributed to your beneficiary. Often, appointing a professional Trustee, such as an attorney, accountant, or financial institution, is the best option because they have the experience and knowledge to successfully administer the trust, and they are far less likely to have a conflict of interest.
Customizing Your Spendthrift Trust
Another advantage of including a spendthrift trust in your New York estate plan is the ability to customize its terms to fit your specific goals. For example, you might instruct the Trustee to make distributions only for educational expenses, healthcare, housing, or other essential needs. Alternatively, you could set milestone-based distributions, where funds are released upon reaching certain life events, such as graduating from college, starting a career, or reaching a certain age. You can also specify whether the trust will terminate after a certain period or whether it will continue to provide for the beneficiary throughout their lifetime, allowing you to address both immediate concerns and long-term financial security for your loved ones.
Do You Need Help Incorporating a Spendthrift Trust into Your New York Estate Plan?
For more information, please join us for a FREE estate planning seminar. If you need assistance incorporating a spendthrift trust into your New York estate plan, contact the Long Island estate planning attorneys at Eghrari Law Firm by calling us at 631-265-0599 to schedule your appointment.
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