Why a spendthrift trust might be the right choice

On Behalf of | Nov 13, 2023 | Estate Planning

If you’re a high-net-worth individual in Michigan, you likely want to make sure your children or other heirs are cared for in the event of your passing. And that means not just leaving them money or other assets, but ensuring that they’re able to live a secure and comfortable life.

If your heirs are settled adults, oftentimes you can simply leave them the assets and trust them to manage them wisely. But estate planning gets trickier when dealing with teenagers or immature adults. A spendthrift trust may be your best option in those cases.

What is a spendthrift trust?

A spendthrift trust, also known as a spendthrift provision, is a way to ensure your heirs don’t squander the assets you leave them. Instead of bequeathing money or assets directly and immediately, a spendthrift trust portions out the inheritance over time.

The milestones can be age-related or tied to life events, like graduating college, getting married, or buying a house. But the general concept is to ensure your heirs aren’t able to waste or lose their entire inheritance while they’re still very young.

Considerations when deciding on a spendthrift trust

The first and most important consideration is: Do you think there’s a chance your heirs won’t have the wherewithal and financial responsibility to protect their inheritance? Remember that a spendthrift trust protects against not just your heir directly spending the money, but also being taken advantage of by associates and creditors.

There are a couple of drawbacks to a spendthrift trust, however. The first is that a spendthrift trust costs more than a simpler will or estate plan. There’s an upfront cost to set it up, and ongoing tax implications over the years. Second, you’ll need someone you trust to act as a reliable trustee overseeing the trust.

A spendthrift trust allows you to protect your heirs from financial issues if you suspect they might not be mature or responsible enough to take care of your inheritance. If you fear this might describe your situation, look into what it would take to establish a spendthrift trust.