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What is a spendthrift trust, and who should consider one?

On Behalf of | Oct 23, 2024 | Estate Planning

A spendthrift trust provides a valuable tool for individuals who want to protect assets and ensure long-term financial security for loved ones. This type of trust helps beneficiaries manage inheritance responsibly and keeps assets safe from creditors.

Understanding a spendthrift trust

A spendthrift trust limits how a beneficiary can access and use trust assets. The trust gives a trustee control over the assets, and the trustee manages and distributes funds when needed. The beneficiary cannot access the trust’s principal directly, which prevents misuse or rapid depletion of the inheritance.

This type of trust also keeps assets safe from creditors. Because the beneficiary cannot directly access the trust funds, creditors cannot easily claim them to settle debts. This feature makes the spendthrift trust particularly helpful for beneficiaries with a history of financial instability or excessive spending.

Who should consider a spendthrift trust?

A spendthrift trust works well for individuals concerned about a loved one’s ability to manage an inheritance responsibly. It suits beneficiaries who struggle with financial discipline, have a history of substance abuse, or face legal issues. By creating a spendthrift trust, the grantor ensures responsible fund distribution.

Parents or grandparents often create spendthrift trusts to provide financial security for their children or grandchildren while maintaining control over how the assets are used. This type of trust also benefits individuals who want to protect assets for a loved one without risking that the funds will fall into the hands of creditors or be squandered.

A spendthrift trust provides peace of mind by ensuring that assets stay safeguarded and used wisely.