Protecting a Beneficiary’s Inheritance with a Spendthrift Trust
Trusts are useful estate planning tools that allow you to control on what terms your assets will be transferred to designated beneficiaries. Trusts can fulfill multiple purposes, and one of them is to care for a child or other relative that you fear might squander their inheritance. By creating a spendthrift trust, you can protect that person’s property by limiting their access to the trust funds and keeping others from invading them, long after your death.
A spendthrift trust can prevent undisciplined beneficiaries from frittering away their bequests through extravagant, unnecessary spending or by falling victim to third parties exerting influence on them. The trust restrains a beneficiary from selling off or depleting their trust interest and protects that interest from creditors until the beneficiary receives it.
Arizona recognizes spendthrift trusts and the applicable statute makes creating them a straightforward process. Once the trust is created and funded, a trustee is appointed who will manage the assets for its duration. The trustee is given limited powers to make distributions to the beneficiaries, either according to a schedule or for discretionary reasons.
A spendthrift trust clause in a will or separate trust instrument can include any of these terms:
- It can provide for a specific amount to be distributed to the beneficiary monthly, quarterly or annually.
- It can permit additional distributions when a beneficiary reaches certain stages in their life, such as when they graduate college, get married or buy a house.
- It can identify specific expenses for which the trustee can make distributions, such as for college tuition, major medical expenses or educational expenses for the beneficiary’s children.
- It can last for a set period of time or end when the beneficiary reaches a certain age or upon occurrence of a specified event.
A spendthrift trust can shield assets from the beneficiary’s creditors before distribution, which prevents garnishing or executing on funds the beneficiary is expected to receive. Exceptions to this rule are claims for a beneficiary’s delinquent child support payments. Additionally, the United States and Arizona may make claims against the beneficiary’s interest in the trust.
If you have beneficiaries that you believe need to be prevented from wasting assets, a spendthrift trust may be the right solution. Jeffrey P. Hall, PLLC assists clients throughout the Phoenix metropolitan area with developing estate plans that protect their assets and provide for their loved ones as intended. To schedule a consultation, call our office at 480-409-5174 or contact us online.