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Trusts Series Part VI: Spendthrifts

The primary purpose of a trust is to provide a monetary benefit to the named beneficiaries of that trust. There are instances however, where a beneficiary is not good at managing his finances or he has creditors who wish to access his interest in the trust. In order to protect the assets in the trust from the beneficiary’s poor financial decisions or his creditors, a spendthrift provision can be added to the trust.

 

Spendthrift provisions in trusts grant the trustee discretion over distributions of trust assets to the beneficiary, while granting no ability to the beneficiary to withdraw or access the assets in the trust at his own discretion. Without the ability to access the assets in the trust at any time, the beneficiary is not considered to have control over those assets. This lack of control creates a barrier between the beneficiary’s creditors the trust assets, making it extremely difficult for them to gain access to the trust assets in order to settle any of the beneficiary’s debts.

 

Generally speaking, it is more appropriate to include spendthrift provisions in trusts instead of wills. The devises given through a will should usually come without such a condition attached as it may unintentionally create a testamentary trust. For more information regarding wills and trusts please refer to the other blog posting on this site.

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