Spendthrift Trusts - Checks And Balances For Dysfunctional Beneficiaries


by Robin J. Derry - Date: 2007-04-17 - Word Count: 680 Share This!

Spendthrift trusts are rapidly becoming a key estate planning tool for families with one member who's been de-railed by the drug or alcohol culture. Look out your window, look down the street or think of the many persons in your card and contact files. How many families show at least one member who's been impacted by drug or alcohol addiction? Answer? Almost every family has that X-factor.

Primary Purpose And Benefit Of A Spendthrift Trust.

When a family includes a member who has lost some degree of free will and volition due to drug or alcohol addiction, or debilitating disease and accidents, and would not be considered "rational", then a spendthrift trust creates the perfect sort of "control". A disabled or mentally unfit "beneficiary" is known as the "spendthrift" and will be unable to access the family estate or assets, unless approved by the Trustee to the spendthrift trust. It is the Trustee, on behalf of the "spendthrift" who legally "controls the purse strings".

Appointed Trustee Sets "Giving" Rules.

Unless the spendthrift trust charter document specifically sets forth a time table condition on the Trustee, then the Trustee will act is a custodial capacity indefinitely on behalf of the dysfunctional beneficiary. Limits on money and access to the inherited estate are determined in part through the language of the trust charter, along with the judgment skill of the Trustee as fiduciary. For example, where the spendthrift trust specifically sets out a payment such as $10,000 per year to the beneficiary, however where payments can be broken into weekly or monthly allocations, depending upon circumstance, or until the "spendthrift" demonstrates competency.

Result?

In the case where an estate or insurance beneficiary is brain-diseased, with a drug or alcohol or gambling addiction, the Trustee knows that any significant cash distribution will be instantly "converted" into more drugs or impulsive act, so the Trustee "puts the lid" on all but the most necessary expenses, such as rent, food and minor personal expenditures.

Creditor Protection Via Your Spendthrift Trust.

Real or commercial creditors, including banks stores and any other seller of services and products, dislike spendthrift trusts. Reason? A properly constructed spendthrift clause bars the creditor from any access to the trust's assets. No liens, no court ordered liquidations, no attachments or reductions in the trust's assets (corpus) and absolutely no payments of any creditor obligation can be imposed on the spendthrift trust unless and until the Trustee approves.

Creditor Costs And Time Limits.

Costs of litigation along with statute of limitations laws in each State further complicate the creditor pool, and they may never receive payments particularly if "the clock runs out". Result? A creditor can sue, but even winning the court case as a judgment creditors he cannot gain access to the trust's cash or property for payment relief. Creditors can only attach any "received payment" that the spendthrift gets.

Key Qualifying Language - Spendthrift Clause.

In order for the trust to be valid, in its objective of legally restricting a beneficiary's access to the trust's assets, the trust charter or deed of trust document must clearly and unambiguously show the trust creator's intention to restrict inheritance unless and until specific qualifying conditions are met by the beneficiary.

Simple Standard Form And Low Cost.

Unless your family estate exceeds the Federal thresholds, which may rise to over $3 million under current legislation, you can settle an irrevocable trust, operating with spendthrift clause conditions, using local qualified small practice attorneys. Costs are modest, since the form of trust is "boilerplate" modified only by your family's particular facts and figures.

Selecting Trustees And Back-Ups.

You'll need a responsible person to act as Trustee...one who understands the legal and practical implications of her responsibility. You'll also need a back-up or fall back Trustee to step into the responsibility in the event that your primary Trustee dies or becomes incapacitated. Your Trustee will operate under a legally binding power of attorney authority over the spendthrift trust's assets.

Bottom Line.

A spendthrift trust provides long term financial protection for your loved ones, despite their current limitations. Once they improve and "normalize" their lives, they receive the balance of the family estate, according to the family's intentions.


Related Tags: estate planning, will, spendthrift trust, spenthrift clause

Learn More About Spendthrift Trusts And Family Estate Planning. Please go to the following links for additional details on spendthrift trusts for your special needs family estate planning.

Wills and Estate Planning: http://www.wise4living.com/lwill/

Do It Yourself Wills: http://www.wise4living.com/lwill/do-it-yourself-will.html

Author Robin Derry is publisher for http://www.wise4living.com/ a specialty knowledge site that gives insights and solutions into spendthrift trusts and family law legal needs, home and gardening projects such as deer fencing, technology trends, unique gift designs, HDTV and home entertainment systems, technology gifts, tips for families committed to youth summer camps, body health, household, sport, travel, footwear, education, and much more.

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