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When would funding a spendthrift trust be prudent?

If you are mulling your estate-planning options, one factor that you might want to consider is a spendthrift trust. But, don't let the name put you off.

Spendthrift trusts are not used solely to protect your heirs from their own worst impulses, although they certainly can be used for that as well. These trusts are designed to protect assets in many other circumstances.

Defining a spendthrift trust

These type of trusts are designed to prevent the beneficiaries from having direct, unfettered access to the funds. Instead, trustees manage the funds and disburse allotments according to the written instructions of the trust grantor (you, the person who funds the trust).

Why you might choose this kind of trust

Spendthrift trusts are useful when the beneficiary has shown they are ill-equipped to manage large sums of money or are too young and/or immature to handle the funds themselves. Read on for other instances when these trusts can be useful.

To keep the trust's assets from a beneficiary's spouse

Your heir and the trust's beneficiary might be fiscally responsible but married to someone who knows only how to fritter money away. Especially in a community property state like Louisiana, a spendthrift trust can be a godsend to prevent the irresponsible spouse from bleeding dry the assets you leave to your heir.

To protect the assets from litigation

Suppose you intend to leave your grandson enough cash to cover tuition and even law school at LSU. But, one night he got into a bad accident that severely injured another motorist. If you bequeath those funds directly to him, the money could wind up as part of a settlement for the injured driver if they pursue a personal injury claim.

Your beneficiary may face malpractice litigation

If your grandson does complete law school, passes the bar and hangs out his shingle as an attorney (or your granddaughter becomes a surgeon), either of them could one day face malpractice claims. But in a spendthrift trust, the funds will remain a protected asset.

Not subject to liquidation in bankruptcy

We are living in very uncertain financial times. Bankruptcies that would have been unimaginable only a decade ago are becoming quite commonplace. There is no way to anticipate the future financial circumstances your beneficiaries might face, but there is a way to protect the assets you want to leave them: a spendthrift trust.

It's never too early to plan for the future

Spendthrift trusts are just one way to disburse your assets to your heirs. Your Zachary estate planning attorney can discuss and review other ways to ensure your heirs have a solid financial future.

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