What is a spendthrift trust?

On Behalf of | Apr 26, 2023 | Estate Planning

As a parent, you put time and effort into teaching your children how to navigate the world as good adults. However, some may end up with spending habits that worry you.

You may want to look into a spendthrift trust in that case. It does not leave your children penniless but also protects your assets from immediately getting spent.

Defining spendthrift trusts

MetLife discusses spendthrift trusts and their purpose. These trusts essentially put limits on disbursement. You are able to decide how much you want your child to be able to withdraw from the trust.

They can be revocable or irrevocable. They also include similar key elements to other types of trusts, including having a grantor, a trustee who manages your trust, and the beneficiary or beneficiaries who benefit from the trust.

The caveat of a spendthrift trust is that the trust itself serves as the sole owner of its assets, instead of ownership getting passed down to a beneficiary.

The beneficiary then receives trusts over a period of time, on a schedule that the grantor and trustee decide on together. This allows the beneficiary to have some access without having the power to blow everything in one go.

Benefits of a spendthrift trust

As mentioned, this type of trust essentially protects a beneficiary from his or her own poor spending habits.

However, it goes beyond that, too. It also protects beneficiaries from creditors. These assets are not part of the beneficiary’s assets due to the trust’s designation as self-owned, so they are not up for grabs in the event that a creditor attempts to seize assets.

Thus, they’re all-around extremely helpful tools for individuals who need a bit of help with trust management.