Estate Planning Isn’t Just For The Elderly

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Should you include a spendthrift clause in a trust?

On Behalf of | Nov 13, 2023 | Estate Planning

Planning for the future involves important choices, particularly when establishing a trust for your heirs. One of the decisions you face is whether to insert a spendthrift clause into the trust. This type of clause acts as a shield for the trust’s assets, preventing creditors from claiming the funds before your heirs receive them. It safeguards the inheritance, ensuring the assets you have dedicated to your loved ones stay secure until they meet the distribution terms you set. Remarkably, Marketwatch reported that over 33% of people who received an inheritance had a negative savings account within two years.

While it seems like a cautious step to include a spendthrift clause, you need to weigh its benefits against the message it may send to your heirs about trust and financial accountability.

Protecting the trust’s assets

Choosing to include a spendthrift clause means you put up a barrier between the trust assets and your heirs’ creditors. As a result, even if your heirs accumulate debts, those creditors cannot seize the inheritance you have set aside until it officially passes into your heirs’ possession. This clause is your tool to ensure that the assets you have collected will go to supporting your heirs rather than settling their debts.

Maintaining family wealth

Beyond shielding assets from creditors, a spendthrift clause can contribute to preserving family wealth through generations. By limiting immediate access to the inheritance, you prompt your heirs to adopt a long-term perspective on financial management. This strategy is particularly beneficial if you suspect that sudden wealth could lead to impulsive spending.

Promoting responsible financial behavior

Some believe that a spendthrift clause also fosters financial responsibility. It shows that you have thought carefully about how to manage the trust funds in the future and that you expect your heirs to show financial restraint. Awareness of the trust’s protective measures can inspire heirs to better handle their finances, reducing dependency on the trust as a financial crutch.

Ultimately, adding a spendthrift clause in a trust for your heirs offers substantial protections. When setting the terms of the trust, consider how a spendthrift clause reflects your estate planning objectives and the importance you place on wise wealth management for your heirs.