A spendthrift trust does what it says on the tin. It is a trust to help people be careful with how they spend the money they inherit, but how does it do this and why might it be needed?
The trust acts as a layer of protection. Putting money or other assets into a spendthrift trust makes it harder for the person inheriting to access the assets and dispose of them without due care. There will be rules for the trust and a trustee to manage and release the money or assets in accordance with those rules. The rules will be set by whoever makes the trust, known as the grantor.
Why might a grantor need to do this
One reason people create a spendthrift trust is when they are worried the intended beneficiary is not capable of handling the money sensibly and with caution. Reasons for these concerns could include a beneficiary having an addiction problem. That could be betting on horses or it could be spending on heroin.
Both could soon drain any inherited funds and do considerable harm to the person and their relationships. The rule might be that the person only gets a limited amount per month, or that they only inherit if they kick their habit.
Concerns someone might take the money from the beneficiary
Maybe you have a lovely, intelligent granddaughter you would like to leave money to, but she is due to get married to a boy you consider a real sleaze. The fact he has convinced her to marry convinces you he is capable of persuading her to spend her inheritance on things he wants, rather than using it to pursue the master’s degree she wants. A spendthrift trust could help prevent this.
Be sure to find out more if you feel you need an added layer of protection for the assets you wish to leave someone. Otherwise, all that money you saved may go to waste.