You love all of your heirs equally and want to do right by each one. But, in reality, you recognize that their circumstances are vastly disparate. You worry what will happen to them once they each get a share of your estate.
It’s not an idle concern, as there are many different ways that an inheritance can be dissipated in an alarmingly fast manner.
Your heirs and their circumstances
Your daughter is a professor at a California university. She is sober and a solid citizen. But she is married to a man who is just a bit too fond of betting on the horse races.
Your son the surgeon has a great career ahead of him. But you are worried that a single error on the operating table could leave him wide open to a malpractice lawsuit that could wipe out his inheritance in one fell swoop.
You have two grandchildren. Your granddaughter has struggled for years with mental health and substance abuse problems. She appears to be in a good place right now, but you’ve been down this road before with her and realize that this could change in an instant.
Your grandson is in the military and married a woman whom you’ve never met. He’s changed a lot since he married her and you are concerned about the influence that she may wield over him. They also seem to be living a bit too large for a military couple on a tight budget. You worry that their overspending could lead straight to bankruptcy court.
Will the wealth you’ve spent a lifetime amassing be dissipated by some bad financial decisions or life choices? This nagging worry has kept you from planning your estate.
Enter the spendthrift trust
What if there were a way to protect your heirs and their inheritances from shady spouses, creditors, lawsuits and their own misguided decisions?
As it turns out, there is, and it’s called a spendthrift trust. Trusts are superior estate planning tools in general because they allow your beneficiaries to dodge probate. But spendthrift trusts have an extra “oomph” to them because they don’t give your beneficiaries access to the trust principal.
Why choose a spendthrift trust?
Spendthrift trusts are irrevocable living trusts overseen by a trustee. The trust assets are held and distributed in increments according to the instructions of the trust grantor who funds it.
This enables the trust to remain essentially intact and safe from dissipation by spouses of beneficiaries or the beneficiaries’ creditors or plaintiffs who sue them civilly. In all of the above hypothetical situations, the beneficiaries had one or more detrimental issues that could lead to the depletion of the trust’s funds if they were to be granted full access.
Think of it as putting the brakes on an out-of-control train, as that is essentially what you are doing. You can dictate the terms of the trust, e.g., when the distributions will occur and how much each will be. You can also preset conditions if you choose to do so where beneficiaries can only receive disbursements if certain terms are met (they remain employed, are drug-free, etc.).
Your Torrance estate planning attorney can help you draft and fund the trust that best meets your and your beneficiaries’ needs.
