When to Use a Spendthrift Provision in a Trust

When it comes to trusts and estate planning, it’s easy to assume that things are mostly black and white. You leave money or assets to certain people and, upon your passing, those people receive those assets, right? But things aren’t always so cut and dry. 

Sometimes this makes estate planning complicated and stressful, but other times it’s to your benefit! Keep reading to learn more about using a spendthrift provision in a trust. 

Spendthrift Provision 101

Simply put, a spendthrift provision is a type of clause you can include in your trust that limits what assets of yours can be reached by certain beneficiaries and their creditors. This clause can help protect the beneficiary from both their creditors and from going into debt in anticipation of their inheritance. 

It’s common to see a spendthrift provision paired with a staggered distribution scheme, which distributes inheritance to a named beneficiary via annual payments instead of in a lump sum. 

The Pros & Cons of Including a Spendthrift Provision in a Trust

You might be wondering why you would want to include this clause in your trust. It’s commonly used by people who want to leave money or assets to people they would describe as financially irresponsible or those vulnerable to outside influence or fraud. 

A spendthrift provision (and a staggered distribution scheme) can help ensure that the beneficiary indeed benefits from the inheritance they receive, without handing it all over to creditors or spending it all within a short amount of time. This also prohibits the beneficiary from using their future inheritance as a means to obtain credit for large purchases like a car or house. 

One negative aspect of including spendthrift provision in a trust is that it may allow your trust to remain open for longer than usual, typically a number of years. This also means that your appointed trustee will need to manage it throughout that time. It’s important to consider this decision carefully, otherwise you might simply be creating more work and stress for your chosen trustee! 

Professional Estate Planning

Families—and people—are complicated. While some aspects of estate planning are pretty straightforward, oftentimes situations go against the standard. It’s not uncommon to have someone in your life you want to leave assets to but worry about how they'll handle those assets. This is where important clauses like the spendthrift provision come in. 

Estate planning is about a lot more than just making sure your assets go to the right people in the right way. It’s also about ensuring that your legacy lives on in the way you intend it to. Careful planning is necessary to protect that legacy, but unfortunately many get lost in the complicated process. 

Kristin Waters Sullivan is a Birmingham native who specializes in all things estate planning. She knows the value of someone’s legacy, and will work hard to protect yours. Interested in beginning your estate planning journey now? Get in touch to set up a stress-free consultation.