How does a spendthrift trust work?

One of the best things about planning trusts is that there are a variety of different trusts available for various needs, and you have a great deal of flexibility in customizing a trust to suit your family’s individual circumstances. If you plan on leaving a large portion of your estate to a family member you are concerned might not be equipped to handle such an inheritance, you might consider setting up a spendthrift trust. It is important that you and other Detroit residents understand how this type of trust works.

The Balance defines a spendthrift trust as one you might create for a beneficiary who might spend an inheritance all at once or who might later end up deeply in debt, thereby potentially losing the inheritance to creditors. For example, your relative might have squandered large monetary gifts you gave him or her in the past. Or, your family member may be known for maxing out credit cards, being easily deceived by fraudsters or struggling with an addiction. In any of these cases, you would have a valid reason for being concerned with how your relative handles his or her inheritance.

A spendthrift trust addresses these issues by allowing you to designate a trustee to manage the trust property. The trustee may distribute funds to your relative on a regular basis or purchase goods or services on his or her behalf with the trust funds. Because the beneficiary is not able to access the trust property on his or her own, creditors also cannot get hold of the funds. In this way, the property you leave to your loved one is largely protected and he or she is able to enjoy the inheritance for an extended time.

Trust creation takes planning, patience and knowledge. Therefore, it is important that this information not replace the advice of a lawyer.