The term spendthrift trust sounds like something you would put in place to have access to all the money needed whenever it is wanted. But nothing could be further from the truth. A spendthrift trust can be a good decision if you want to provide funds for certain individuals and make sure that no one else can touch it. It also is a way of protecting the money of the beneficiaries from the beneficiaries.

Who Will Benefit?

A grantor might set up a spendthrift trust for his spouse on the event of his death. Or he may set up one for his children or his grandchildren. It all depends on what he wants to do and who the grantor is trying to provide for financially.

Providing Protection against Creditors

A spendthrift trust, or even a spendthrift clause in another type of trust, can provide protection for the beneficiary. The inheritance cannot be eaten away by the beneficiary’s creditors.

It can also provide protection for the beneficiary in the event of a divorce or other family situation gone wrong. The trust fund cannot be touched by a spouse or included in assets that need to be split upon a divorce

This can bring peace of mind to the grantor and the beneficiary. If the father decides to leave a large amount of money in his will to a daughter who is steeped in debt then typically upon his death, her creditors have the right to seize the money they need, leaving her high and dry.

But a properly set up trust fund can provide steady money for her to take care of the debts slowly, while getting back on her feet.

Protection Against Self

A spendthrift trust is also protection for the beneficiary against mismanagement of funds or wasteful spending. If the beneficiary is a poor money manager, or even just very young, this type of trust will prevent them from squandering their money.

A spendthrift trust is therefore a good choice for a college fund or for grandchildren. In it, one would outline exactly how much the beneficiary would receive monthly and what the additional monies could be used for.

Check Your Laws

As anything else in the legal world today, the laws are changing. Some states will not honor spendthrift trusts against creditors or have a cap on the amount that can be put into one. Other laws allow for things like child support to be extracted from trusts.
Have your lawyer check your state laws in-depth before planning your spendthrift trust fund.

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