In California, you might be looking into a spendthrift trust. After you pass away, this will ensure income to your beneficiaries. But you have yet to decide whether to use this type of trust or another one. This article will help inform you about a spendthrift trust and its benefits.
What is a spendthrift trust?
A spendthrift trust is a type of trust that limits the beneficiary’s access to assets. You are the grantor who establishes the trust, and the trustee controls the management. This fund will release incrementally, and the beneficiary cannot sell the equitable interest in the trust. Here is an example.
The benefits and risks of a spendthrift trust
If the beneficiary goes into debt, the creditors may not be able to reach the assets within the fund, and it also protects against the bad spending habits of an inheritance. Also, it bypasses probate if set up within your lifetime.
If you opt into an irrevocable trust, it will offer more protection against taxes and probate. Also, this means no one can break a spendthrift trust because it is meant to protect the beneficiary against themselves and creditors.
One risk is having to choose a trustee responsible for making the distributions and managing the spendthrift trust after you pass away. Also, it is expensive to set up and maintain. Finally, even going through the whole process of setting up the trust, your beneficiaries may still be able to challenge the provisions in court. So, other methods for end-of-life planning might be appropriate.
Should you start a spendthrift trust?
If you think the spendthrift trust could be right for your situation, it is important to do your research. Then, it would be best if you spoke with an estate planning attorney to discuss your specific needs and goals.