Understanding the mechanics of a spendthrift trust

On Behalf of | Aug 7, 2023 | Estate Planning |

In Massachusetts, a spendthrift trust is an essential estate planning tool that offers a strategic approach to managing your financial assets and the well-being of your beneficiaries’ finances. This vehicle can provide peace of mind that your heirs will receive their inheritance in a manner that helps preserve the assets and distribute them according to your wishes.

What is a spendthrift trust?

For estate planning purposes, individuals can choose from many types of trusts. A spendthrift trust is a specialized variant that moderates a beneficiary’s access to the funds or assets within the trust. This kind of trust allows you to provide assets to your heirs while maintaining control over the timing and amount of distribution.

Unique features

Unlike conventional trusts, a spendthrift trust has a unique feature called a spendthrift clause or provision. The provision allows the trust entity to become the sole owner of the assets contained within it. This action prevents their immediate transfer to beneficiaries upon your passing.

The trust assets are transferred gradually over time, following the schedule established by you and the trustee you appointed. Using this type of trust, you can control its disbursements using simple rules or more complex directives while allowing for extenuating circumstances. For example, you can allow the beneficiary to receive additional funds if an emergency arises.

Protecting assets

A spendthrift trust’s primary advantage is its ability to protect your assets from a beneficiary’s potential financial instability or irresponsibility. Its mechanism protects your estate from overspending while still allowing your loved one to receive the intended inheritance, which can safeguard their financial future. For example, you can release the individual’s inheritance in monthly sums, which may help them exercise more prudent financial judgment.

Like some other types of trusts, a spendthrift trust can also provide additional protection for your assets against creditors, divorce and other legal actions. Because of the trust’s ownership structure, the assets are not considered part of the beneficiary’s personal assets, which protects them from legal claims.

A spendthrift trust offers a balance between asset protection and distribution. Finding the trust structure that best fits your needs can help you achieve your overall estate planning objectives.