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What parents need to know about spendthrift trusts

When planning for the future, a person in Detroit should consider how his or her beneficiaries may handle their inheritance. For many people, the goal is not merely to distribute assets, but to allocate them as provision for their children’s future. Not everyone understands how to be responsible with money, though, particularly when there is a lot of it. NerdWallet explains that in these cases, a parent can choose someone else to manage the child’s inheritance for him or her through a spendthrift trust.

As HuffPost points out, an irresponsible heir could deprive himself or herself of an inheritance set up in a regular trust fund because there are methods for selling the future income. Typically, a spendthrift trust includes a provision that prevents this action, along with protections against the income being seized by creditors, liquidated in a bankruptcy or divided in a divorce. However, a judge who makes a ruling in a divorce may consider the income when determining a fair division of other property. Laws regarding child or spousal support may require a beneficiary to use the income to make those payments.

To keep the recipient from wasting the income or using it destructively, such as funding a substance abuse habit, the grantor both spells out how the money can be used, and provides authority to a person or institution. This trustee may believe it is an acceptable idea to work closely with the beneficiary regarding the use of the funds. This could lead to a problem for someone with an inclination toward debt, though, as creditors may claim that the trust is a fraudulent attempt to keep money that should be used to settle the amounts owed. 

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