In our previous post, we started exploring how those with serious concerns about leaving anything of value to a loved one with a checkered past and/or track record of poor financial decisions might consider the creation of a spendthrift trust.
To recap, a spendthrift trust allows the grantor — the trust creator — to limit a beneficiary’s access to the trust principal by structuring it in such a way that the he or she only receives a benefit via the named trustee.
While a spendthrift trust can grant a person much needed peace of mind about leaving property or money to their prodigal loved one, it’s nevertheless important for them to understand that this is not a boilerplate document.
Rather, they will need to carefully consider what they perceive to be the beneficiary’s limitations and ensure that this is effectively counterbalanced in the powers ultimately granted to the trustee.
For example, the grantor will need to decide if they think the beneficiary can handle a regular cash payment from the trustee. If so, they need to decide how often these payments should be made, how large they should be, how long they should last and whether the trustee has the power to withhold them at any signs of problems, among other considerations.
Conversely, if they decide that the beneficiary is incapable of handling regular cash payments, they will need to vest the trustee with the authority to purchase goods or services on their behalf. From there, they will have to determine how often this should happen, how much can be purchased per distribution, how long the distributions should last, and whether there are any special circumstances in which larger purchases (or even cash payments) could be allowed, among other considerations.
While the grantor can assume the role of trustee and the decision-making responsibility that comes with it, it will be necessary for them to name a successor trustee in the event of their death. As such, these types of questions will require an answer, and the selection of a person or institution willing to take on this significant responsibility.
What all of this really serves to underscore is that establishing a spendthrift trust, while often an excellent idea, nevertheless requires considerable thought and painstaking preparation. Accordingly, those mulling this option should strongly consider speaking with an experienced estate planning professional who can guide them through the process.
