Redding, California, Law Blog

Defining a spendthrift trust and its benefits

On Behalf of | Jun 7, 2023 | ESTATE PLANNING - Trusts

In California, a spendthrift trust is an estate planning tool to help regulate your beneficiaries’ access to the assets or funds held within a trust. By choosing this type of trust, you can maintain control over how your assets get distributed while ensuring that your loved ones have ongoing support. A spendthrift trust has some key features and benefits.

How the trust works

A spendthrift trust operates somewhat differently than other trusts. While a traditional trust transfers ownership of assets to beneficiaries immediately once the grantor has passed, a spendthrift trust has a special provision that allows the trust to maintain ownership of the assets. This crucial difference allows the trust to gradually release the assets to a beneficiary over time according to a predetermined schedule. This mechanism helps protect against a beneficiary’s irresponsible spending habits.

Protection for assets

A vital benefit of a spendthrift trust is the ability to protect your assets from the unreliable habits of your beneficiaries. Since the assets stay within the trust a designated trustee manages, they do not become part of the beneficiary’s assets. This feature shields the assets from creditors, divorce and other legal actions, ensuring your beneficiary has the funds for their intended purpose.

Ensuring responsible financial habits

Since a spendthrift trust gradually releases assets, it provides a sustainable way to manage an inheritance over time. For example, your predetermined distribution schedule can provide funds monthly or quarterly, ensuring that your beneficiaries have a stable and consistent income stream while preventing them from spending the entire inheritance at once.

Setting up the trust

Establishing a spendthrift trust is not much different from other trusts but requires additional thought when choosing the distribution terms. For example, you can customize the distribution schedule for regular payments or provisions for emergencies.

Setting up a trust for your beneficiaries ensures they receive the intended assets. A spendthrift trust can help fulfill your wishes for sustainable financial support after you are gone.