Spendthrift Trusts

As experienced attorneys in Pensacola, we understand how to navigate the many complexities involved in creating a customized estate plan. When you’re ready to secure your family’s financial future, we’re here to help. Schedule a consultation today.

Estate planning is a wonderful way to ensure your family will be taken care of after you pass away. By designating your loved ones as your estate’s beneficiaries, you can rest easy knowing that the wealth you worked so hard to create will continue to benefit your family—or at least that’s the idea. 

In reality, however, mapping out beneficiary designations can be extremely complex, especially if you have concerns about how certain family members would spend their inheritance. For example, you may have a child who suffers from drug addiction or a gambling problem, or a sibling who owes a fortune to creditors. How do you leave them an inheritance while simultaneously ensuring it won’t be wasted?

One possible solution is establishing a spendthrift trust. While this trust document can safeguard an inheritance from misuse, it isn’t appropriate in every situation. This article will explain everything you need to know about spendthrift trusts, including their pros and cons, steps to setting one up, and how a dedicated spendthrift trust lawyer can help you achieve your goals.

Need legal advice about your estate plan? The Medley Law Firm is here to help. Contact our law office online or give us a call at (850) 607-7890 to schedule a consultation with an experienced legal professional today.

Understanding Spendthrift Trusts

spendthrift trust is a special type of trust designed to protect beneficiaries’ inheritances from poor financial management, as well as from creditors. It includes specific provisions that prevent the trust’s beneficiary from pledging their future interest in the trust assets and stop creditors from claiming the trust’s assets to satisfy debts. 

The person who establishes the trust is called the grantor. After the grantor passes away, the trust is managed by an appointed trustee, who will make distributions to the beneficiary according to the terms of the trust set by the grantor. This ensures that the trust’s assets are preserved for the beneficiary and used according to the grantor’s wishes.

Essentials of a Spendthrift Trust

Trusts are an essential estate planning tool, and they come in many different forms. Each type of trust is unique and has distinct qualities. Here are a few of the essential features of spendthrift trusts: 

  • Spendthrift provision: This type of trust includes a spendthrift clause, which legally restricts the beneficiary’s access and ability to pledge or sell their interest in the trust’s assets. It also limits creditors’ access to trust assets before they are distributed. 
  • Trustee selection: The grantor appoints a trustee to manage and distribute assets according to the trust’s terms and in the best interests of the beneficiary.
  • Distribution guidelines: Spendthrift trusts should include clear, detailed instructions for how and when trust funds should be distributed to the beneficiary.
  • Asset protections: A spendthrift trust is structured to offer protection against the beneficiary’s creditors. Considerations include the types of assets placed in the trust account and management strategies that achieve maximum protection.
  • Funding the trust: A spendthrift trust can only protect the assets that are transferred into it. The process of transferring assets into the trust is critical and may require re-titling assets in the name of the trust. 
  • Defining beneficiaries and trust purpose: The grantor must clearly define the beneficiary of a spendthrift trust, as well as the trust’s purpose, to ensure it is structured and administered according to the grantor’s wishes. 

Including these essential elements can help ensure a spendthrift trust is legally sound and effective. As one of the more complex trusts in estate planning, it’s critical to work closely with a spendthrift trust lawyer in establishing your trust. 

Pros of a Spendthrift Trust

There are numerous benefits of a spendthrift trust, for both the grantor and beneficiary. For the grantor, this type of trust provides flexibility, greater control over assets, and peace of mind knowing that their assets won’t be squandered or seized. The beneficiary, even if they are disgruntled, also benefits. The distribution guidelines will ensure their inheritance can’t be spent all at once and may encourage positive lifestyle changes.

Cons of a Spendthrift Trust

Like all estate planning tools, spendthrift trusts also come with potential disadvantages. After the grantor’s death, the management of this trust relies solely on the appointed trustee; if they prove unreliable, a beneficiary may encounter issues. Additionally, the effectiveness and enforceability of spendthrift provisions vary by jurisdiction, some of which have specific requirements and limitations on how spendthrift trusts can be structured. Lastly, these trusts may lead to disputes, especially if beneficiaries feel the restrictions are unfair or unwarranted. 

How to Set Up a Spendthrift Trust

To properly establish a spendthrift trust, most people require legal assistance. An experienced Florida estate planning lawyer can guide you through the following steps to establish your trust:

  • Identifying objectives: including specific goals for setting up the trust 
  • Beneficiary needs: such as the recipient’s current and future needs, financial habits, and potential risks that warrant the creation of a spendthrift trust
  • Selecting a trustee: that is reliable and capable of managing the trust according to the grantor’s wishes
  • Drafting trust terms: including spendthrift provisions, how and when distributions should be made, and what conditions must be met before distributions are made
  • Funding the trust: with cash, stocks, real estate, or other assets
  • Reviewing and signing the trust: to ensure it accurately reflects your wishes

It’s critical to work with a dedicated Florida estate planning attorney to ensure your trust is established in full compliance with Florida state laws and tailored to meet your specific goals. 

Medley Law Firm: Experienced Spendthrift Trust Lawyers in Pensacola, FL

Establishing a comprehensive estate plan can be a complicated, emotional process, especially when it requires special considerations. Although creating a spendthrift trust can be an involved process, it’s not one you have to go through alone—the spendthrift trust attorneys at Medley Law Firm are here to help. Contact us online to schedule a consultation.

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Medley Law Firm is an Elder Law, Estate Planning and Probate firm in Pensacola, Florida that offers in-person professional services from Pensacola to Panama City and virtually across the entire state.

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