Of course, you love your grandchildren, but you wish they were more “mature” in their decision-making. You want to leave them part of your estate, but you are concerned that they will “blow it” on the vagaries of youth rather than investing it for the types of assets you value as an adult. What to do?
The term “spendthrift trust” has become popular for just those types of situations. A spendthrift trust lets you leave funds to a beneficiary without giving him or her full control over those funds. This type of trust has significant restrictions that safeguard your youthful heirs from themselves – and potential creditors. Such a trust allows a trustee the authority to distribute funds according to your wishes and protect your beneficiary from squandering the wealth that was bequeathed to him or her. It also protects them from being taken advantage of by others.
Trusts are created by estate planning attorneys. In the document the attorney can write into the trust certain rules for distribution. These rules can include that the beneficiary achieve a certain age or that they receive installments at certain life stages. That way, if you have an heir or someone to whom you want to leave an inheritance who is immature, irresponsible or underage, the spendthrift trust can give you some control over how and when the money is spent.
A side benefit of such a trust is that it can protect the principal from creditors or even an ex-spouse. The laws regarding such protections can vary by state so it is critical that you work with a local estate planning attorney to make certain the documents are properly drawn.
One of the key tasks in setting up a spendthrift trust successfully is determining the person who is named as the trustee of the funds. That individual can have some discretion over the distribution of the funds so it needs to be someone whom you can trust over the long term.