Spendthrift trusts are a type of trust that is used to protect the assets of the beneficiary. The trust is established for the benefit of someone who is known as a “spendthrift.” The trust will prevent the beneficiary from spending the money or assets in a way that would waste them. This can be helpful for individuals who may not be good with money or have a history of spending their money recklessly.
The spendthrift trust can help to ensure that the beneficiary’s assets are protected and preserved for them. This can be helpful if there is a fear that the beneficiary may not be able to manage their own finances or may not be able to resist temptation when it comes to spending their money. The trust will also help to protect any creditors of the beneficiary.
How Do You Set Up a Spendthrift Trust in Texas?
Setting up a spendthrift trust in Texas is a four-step process. With the help of a Texas attorney, this type of trust can be set up relatively easily, and it can provide your loved one with some financial security while still allowing them some limited access to the funds. Here is a look at the process of setting up a spendthrift trust in Texas:
- Choose a Trustee: When creating a spendthrift trust, the grantor will often have to choose a trustee to manage the trust and its assets. The trustee must be someone who is reliable, responsible, and must be able to follow the grantor’s specific instructions on how the trust should be managed. The trustee may also be responsible for making distributions from the trust to the beneficiary, so it is important that they are familiar with the beneficiary’s needs and wants. The trustee can be an individual or a financial institution.
- Draft the Trust Agreement: A trust agreement for a spendthrift trust is a legal document that outlines the terms and conditions of the trust. This document will touch on the specifics of the trust, including who is allowed to access the funds and how they can be used. The trust agreement must include the name of the trust, the name of the trustee, the purpose of the trust, and the beneficiary/beneficiaries of the trust. The trust agreement must also specify how the trust property will be managed and how income and principal will be distributed to the beneficiary/beneficiaries.
- Transfer Assets Into the Trust: The next step is for the grantor to transfer assets into the trust. Once it is created, the trust will own these assets and the beneficiary will not have direct access to them. However, the assets held by the trust will be used, as directed in the trust document, for the benefit of the beneficiaries.
Are Spendthrift Trusts Only Helpful for Spendthrift Beneficiaries?
Spendthrift trusts are often set up for beneficiaries who have a tendency to spend money recklessly. However, they can also be helpful for beneficiaries who are not necessarily spendthrifts. Even if a beneficiary is not prone to spending money recklessly, a spendthrift trust can help protect the beneficiary’s assets from creditors. This is because spendthrift trusts are often exempt from the beneficiary’s creditors’ reach. So, if a beneficiary is facing a legal judgment, a spendthrift trust can help protect the assets of the trust from being seized by the other party in the lawsuit.
Additionally, spendthrift trusts can also be helpful in cases where the beneficiary has an addiction, or when the beneficiary can be easily deceived or defrauded. For example, if the beneficiary is addicted to drugs or alcohol, the trust can be set up so that the funds cannot be accessed if there has been a relapse. This can help to protect the funds from being wasted on drugs or alcohol. If the beneficiary is easily deceived or defrauded, the trust can help to protect all their assets from being stolen by a scammer or fraudulent person.
What Property Can be Placed in a Spendthrift Trust
The most common type of property that is placed in these trusts is cash. However, you can also place stocks, bonds, and real estate in a spendthrift trust. The key thing to remember is that the property must be owned by the person who created the trust. You cannot place property that is owned by someone else in a spendthrift trust.
Is a Spendthrift Trust Revocable?
A spendthrift trust can be irrevocable or revocable. An irrevocable trust cannot be changed, while a revocable trust can be amended or canceled by the grantor at any time. The grantor of a trust may choose to make it irrevocable to provide more protection for the beneficiary or revocable to allow more flexibility. Whether a spendthrift trust is revocable or not will impact how much control the grantor has over the trust and its assets. Which type of spendthrift trust is right for you will depend on your specific needs and situation. If you’re not sure which type is right for you, talk to an estate planning attorney.
In conclusion, a spendthrift trust can be a great way to protect your assets from a loved one who may have a history of irresponsible spending. It is also helpful in protecting your assets if your loved one has a history of drug and alcohol use, lawsuits, or falling victim to scams. By setting up the trust correctly and naming a trustee who you trust to manage the funds, you can help ensure that your loved one will be able to get the help they need without jeopardizing your financial security.
To learn more about spendthrift trusts and how they can benefit you, contact an attorney at the Kazi Law Firm. You may call us toll-free at 1-888-500-KAZI, fill out our online form, or visit any of our Texas offices. Our trust and estate planning attorneys are experts in helping clients create spendthrift trusts and would be happy to help you get started.