A trust is often created for the benefit of minor children and young adults. A trust can also be utilized for a beneficiary who lacks financial discipline, has an addiction that may lead to squandering money, or is otherwise at risk of compromising the assets of the estate. A trust that provides income to a beneficiary without allowing the beneficiary to access the principal without an “ascertainable standard”.is known as a spendthrift trust.
A trust provides an enormous amount of discretion to the trustee to invest and manage the assets for the beneficiary. For instance, the trust could allow the trustee to provide part of the principal to a beneficiary for college education purchases like a car or house. The settlor may also establish special payouts for things like college graduation, marriage, or extended illnesses. The terms of the trust should also specify when the beneficiary should receive the income of the trust. A common example would be monthly payments of a set amount of money, similar to an allowance. When setting up a spendthrift trust, the settlor should consider when the trust should terminate and what happens to the assets of the trust upon termination.
A spendthrift trust can provide income to a beneficiary who may have debt or creditor issues. A properly executed spendthrift trust is beyond the reach of creditors because the trustee cannot use the trust assets to pay creditors.
When you create a spendthrift trust, you name the trustee who will manage the principal and distribute the income to the beneficiary. Upon your death or incapacitation, a family member, lawyer, accountant, or bank or trust office can serve as trustee. The trustee carries out the wishes of the trust and distributes property accordingly. The trustee can also make special payments to the beneficiary and/or purchase goods and services for the beneficiary.
Many parents create a living trust for the benefit of their children. Most minors lack the maturity to effectively manage property and, more importantly, do not have legal capacity to convey property or manage assets in most instances. A trust allows the settlor to provide for the minor children without the child having control over the principal. Without a trust, the court will appoint a guardian ad litem and/or conservator for the management of the children’s assets.
Many young people who reach the age of majority still lack the judgment and maturity to manage financial assets. By utilizing a trustee who has investment experience, the settlor can ensure someone is taken care of for a long period of time. These types of trusts are often called spendthrift trusts. A carefully drafted spendthrift trust is beyond the reach of the beneficiary’s creditors. A spendthrift trust ensures that large assets are not quickly squandered.