If you are beginning the estate planning process, you likely have a lot of concerns. Aside from deciding to whom you'll leave your property, you probably worry about how they'll use it. We all have certain family members that are known for making poor financial choices. For such beneficiaries, you may want to put some constraints on their use of the property. This is the reason that spendthrift trusts exist. See how you can work with an estate attorney to set up a spendthrift trust.
A Brief Primer on Spendthrift Trusts
A spendthrift trust allows the grantor to control the beneficiary's access to trust property. As mentioned, these trusts are good choices when you have doubts as to a beneficiary's ability to manage funds. In essence, this type of trust restricts access to the full amount of the trust property. Thus, the trust protects the beneficiary's inheritance from creditors or misuse.
Spendthrift trusts will not leave the beneficiary empty handed. Although the trust limits direct access to the property, a benefit is still received. The terms of the trust can mandate regular payments to the beneficiary. The trust can also enable the trustee to pay for services or goods for the beneficiary.
A Look at the Trustee's Powers
The trustee plays an important role in the administration of a spendthrift trust. The trustee is a person appointed to manage the trust's property in accordance with its terms. The trust itself will detail what the trustee may or may not do with the property in question. Due to this, you (as the grantor) should take great care in defining the trustee's role. Be sure to work with an estate lawyer to understand the consequences of your actions.
One other thing to consider is that you may be able to act as the trustee. Many grantors choose this option to retain control over the trust property. If you go this route, be sure to appoint a successor trustee in case you become incapacitated in the future.
One Important Consideration
One of the main goals of a spendthrift trust is to protect the beneficiary's money from creditor claims. However, there is an important caveat to this. Once the beneficiary actually receives a disbursement, the funds or property can be subject to creditor claims. As detailed in section 75-7-503 of the Utah Code, other situations can arise when it comes to creditor claims. A beneficiary who owes child support may have to forfeit distributions from the trust. Beneficiaries who owe restitution due to a criminal case may also lose their interest. In any case, it is likely that the creditor will need to obtain a court order before taking action.
Spendthrift provisions can be a great benefit to certain types of beneficiaries. Yet, they can be quite burdensome to trustees if the terms do not explicitly lay out the duties. Therefore, an estate attorney is the best source of information when it comes to creating these trusts. Planning for end of life legal issues requires a lot of thought and preparation to be successful.
For more information about end of life law in Utah, contact us at TR Spencer & Associates.