Redding, California, Law Blog

What is a spendthrift trust?

On Behalf of | Mar 5, 2019 | Firm News, trusts

While many people think of trusts as a way to avoid probate, there are actually a number of ways by which trusts can benefit a Redding, California resident who is trying to formulate an effective estate plan. For instance, trusts can help with tax-related issues, issues involving eligibility for benefits and the like.

They also can allow a person to retain some control over his or her wealth, which may be a smart move in the right circumstances. For instance, control is the point of what is commonly referred to as a spendthrift trust.

Traditionally, and as the name implies, a spendthrift trust was a vehicle by which a person could provide for a loved one, usually in the next generation, yet do so cautiously. Often, the caution was because the beneficiary had a reputation for being irresponsible with money, or, in other words, was a spendthrift.

However, spendthrift trusts can also be used for other reasons, even when the person creating the trust has no concerns about the spending habits of his or her loved one.

Typically, a spendthrift trust is set up so that the intended beneficiary cannot claim his or her share early or, for that matter, even use it as collateral on a loan. As such, the amount in the trust is shielded somewhat from the beneficiary’s creditors.

As is the case with all trusts, setting up a spendthrift trust successfully requires attention to detail and a solid understanding both of California law and of the individual needs and desires of the person setting up the trust.

The stakes can be high in this respect, as not creating a spendthrift trust properly can cause significant financial and legal problems down the road. An experienced estates and trusts attorney can be of valuable assistance.