Estate planning is essential for families and single people alike, and a good estate plan includes effective asset protection measures. When it comes to your disabled loved one, you may want to consider a specific type of special needs trust called a “spendthrift trust.”
But what is a spendthrift trust, and how could it be beneficial? Read on to find out.
What Is a Spendthrift Trust?
“Spendthrift” is a bit of a misnomer. Although this particular type of trust can be used as a way to prevent an heir from falling into the trap of reckless spending, even the most responsible beneficiaries may need protection from unethical creditors, frivolous lawsuits, and manipulative business partners.
When properly established, a spendthrift trust can help protect your loved one from these types of attacks. It can also guard them in the event of a relationship change; for example, if your adult child with special needs divorces their spouse, that spouse typically will not be able to claim a share of the trust property in the settlement.
Additionally, if your disabled child dies before his or her spouse, the spouse is usually legally entitled to a large portion of your child’s estate – including any property you left your child outright. While this may sometimes be a good thing, there are other cases (such as second marriages that come with children from a prior marriage) in which a spendthrift trust can keep your child’s inheritance from going to his or her spouse instead of to your grandchildren.
How Is a Spendthrift Trust Drafted?
A variety of trusts, including special needs trusts, can be written to include a “spendthrift clause.” This clause places constraints on the beneficiary’s ability to transfer or assign his or her interest in the trust, and it limits the rights of creditors to get their hands on the assets in the trust.
It’s important to note that in most states, you cannot draft a spendthrift trust for your own benefit – it must be done for the benefit of someone else. Additionally, the laws surrounding spendthrift trusts are complicated, so it’s wise to consult a special needs trust professional if you have questions regarding a spendthrift trust for your loved one.
Call Alabama Family Trust to Set Up a Special Needs Trust!
Whether a spendthrift clause is necessary for your loved one or not, if you’re the parent of a disabled child or you have an aging parent who will soon enter a skilled nursing facility, a special needs trust is essential. We know trusts can seem confusing, but we’ll walk you through every step of the process and make sure you feel comfortable from start to finish.
Don’t leave your disabled loved one’s assets vulnerable to creditors, nursing home bills, and financial predators. Contact Alabama Family Trust today to learn more about setting up a special needs trust!