How a spendthrift trust works

On Behalf of | May 24, 2017 | Trusts

Some Nevada residents who are creating an estate plan may be interested in a spendthrift trust. This trust is usually used to protect a beneficiary who is unlikely to be able to manage money responsibly. It might also protect assets from creditors and in the event of a divorce although it is important that the trust does not have the appearance of having been created specifically for those purposes.

A spendthrift trust should have certain provisions and language. The trust may specify what its assets should be used for, such as toward a person’s education. The trust may also contain a provision against transfer of funds in the trust whether it is voluntarily by the beneficiary or through seizure.

The role of the trustee should be separate from the grantor and the beneficiary. In some cases, it may be a good idea to create either a limited liability company or a family limited partnership within the trust. “Spray trusts” may also be created that give the trustee the ability to distribute assets to other trust funds or to beneficiaries.

Because of the amount of power the trustee has, selecting the right person for this position is critical in creating a spendthrift trust that works as intended. An attorney may be able to assist in choosing the right trustee and in reviewing other trust options. For example, if the beneficiary is disabled, a special needs trust may be a better alternative because it protects government benefits. Some trusts may require less management than a spendthrift trust and might be set up to distribute funds when a person reaches a certain age or milestone.