Houser Firm

Spendthrift trust: What is it and how does it work?

On Behalf of | Apr 24, 2023 | Trusts & Wills

One of the reasons people work hard is so they can leave behind a little something for the people they care about when they die. As such, it becomes an item of great concern when you have doubts about a beneficiary’s ability to manage their inheritance. 

Let’s face it, not every heir is capable of handling their inheritance responsibly. Fortunately, Texas law has a number of estate planning tools you can utilize to help beneficiaries access their inheritance while taking care of their foibles. One such tool is known as a spendthrift trust

Understanding the role of a spendthrift trust 

As the name suggests, a spendthrift trust is an estate planning tool that prevents a beneficiary from misusing their inheritance. This trust ensures that the designated beneficiary does not receive their inheritance in one lump sum after your death. It also limits or stipulates how the beneficiary can access their inheritance while protecting the rest of the assets from creditors. 

When is a spendthrift trust helpful?

A spendthrift trust is ideal when you want to bequeath assets to a beneficiary who exhibits these characteristics:

  • A history of poor financial stewardship
  • Easily deceived or highly vulnerable to fraud
  • A disability
  • Drug, alcohol or gambling addiction
  • Highly indebted or has a strong chance of getting into debt in the future

Ultimately, it is up to you, the grantor, to stipulate how you want the assets handled through the spendthrift trust’s instrument. 

Making a spendthrift work

Pretty much everyone has that family member who just cannot manage their finances or inheritance, for that matter. If this is your concern with one of your beneficiaries, you may want to consider setting up a spendthrift trust to protect them from squandering their inheritance.