You’ve worked hard, saved when you could, and tried to make sound financial decisions. You’ve done all this so that you can hopefully provide for your family and still pass something on to your loved ones one day. You have also tried to instill your financial values into your children and raise them to be self-sufficient and responsible adults. Hopefully, they will have heeded your lessons and be financially responsible adults. But what if they aren’t?
The reality is that despite the best intentions of parents, children may fall short of expectations when it comes to sound financial decision making. This can cause significant burdens for the child once he or she becomes an adult. Uncontrolled spending, for instance, can lead to accumulation of debt and a mountain of bills that the adult child may be unable to afford. This may impact the child’s ability to rent an apartment, buy a car, purchase a home, or even open up a credit card. The child may even be headed for bankruptcy.
So how can you ensure that what you have worked hard to pass on to the next generation won’t be squandered or used to satisfy your child’s creditors? One of the most effective estate planning tools for protecting and passing on your savings to your children is a spendthrift trust. A spendthrift trust is like other trusts that hold assets for a named beneficiary. The key difference is that the terms of a spendthrift trust prevent the trust beneficiary from having any say in how the assets of the trust are distributed or used. A trustee generally has sole discretion to use the assets for the support and maintenance of the beneficiary, which prevents the trust assets from being wasted by a financially irresponsible adult child.
There is an additional benefit of a spendthrift trust that is equally important. Because the trust beneficiary has no access to the funds, the beneficiary’s creditors generally cannot reach the trust assets to satisfy any claims. This is true even if the beneficiary of the trust declares bankruptcy or owes money to the IRS. Because the trust beneficiary has no ability to access or control what happens to the assets, they are not included as property of the beneficiary subject to creditor claims in a bankruptcy filing or IRS proceedings.
So, is a spendthrift trust the right tool to protect your assets and provide for your loved ones? At Smith, Barden & Wells, PC we will evaluate your goals and entire financial situation to determine which legal strategy is the best solution for your overall estate plan. Contact our office today at 804-794-8070 to schedule a consultation with one of our attorneys.