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How a spendthrift trust protects assets from heirs and creditors

On Behalf of | Apr 20, 2022 | Trusts |

When it comes to estate planning, among your goals is to protect the assets so your heirs may benefit from your success. But, in some situations, you need to protect those same assets from the heirs themselves who may be known for mismanaging money, making poor spending decisions and having costly addictions.

This represents the time that you should strongly consider creating a spendthrift trust. This effective estate planning tool serves as a safeguard in preventing your heirs from blowing their inheritance. Another bonus: Creditors cannot gain access to assets within a spendthrift trust.

Concerns over heirs’ spending habits

When assembling your estate plan, it is natural to have worries about some of your children who may have had a series of failed business endeavors, had gambling and drug addictions or filed for bankruptcy. Money seems to sift through their fingers.

A spendthrift trust may prevent your estate from succumbing to disastrous results. In such a trust, your chosen trustee has strict instructions regarding asset distribution. Among those orders may include stopping distributions to an heir with a drug or gambling habit – sure ways that lead to a financial plunge.

And since the assets belong to the trust – and not the beneficiaries – creditors seeking repayment for one of your heir’s failed financial ventures cannot get to the money, either.

Another key benefit of a spendthrift trust is that, generally, the assets within it are protected from lawsuits, divorce and bankruptcies.

Deep down, they know you made right decision

A spendthrift trust provides another way to look out for your heirs. It keeps your assets safe from their questionable financial dealings. And it also protects those same assets from creditors eager to get their hands on them. Your heirs may complain all they want, but deep down, they know that you continue to have their best interests in mind.