Are you concerned about potential creditors coming after your heirs’ inheritance, claiming the money you intended to leave to your loved ones? Are you nervous your heirs may recklessly squander their inheritance? Such are common concerns in estate planning, especially in instances when the heirs are known to be financial risktakers, financially imprudent, and/or are already in deep financial debt. Despite such concerns, you may still desire to leave all or a portion of your estate to such person(s) but wish to ensure your loved one’s inheritance is secure and outside the grasp of creditors and/or the individual’s destructive financial habits.
A spendthrift clause in a Trust allows you to do exactly that. Including a spendthrift provision in your Trust provides protection by ensuring your beneficiaries’ interests are protected from current or future creditors by preventing such creditors from attaching debts to, acquiring a present or future interest in, or gaining control of the beneficiary’s interest in the Trust. Moreover, a spendthrift provision prevents your beneficiaries from acquiring any future debt based on future inheritance they stand to receive from the Trust. Furthermore, a spendthrift provision bars creditors from compelling the Trustee to pay the beneficiary’s share or the beneficiary’s income from the Trust directly to the creditor, as the Trustee retains discretion as to how much income or assets of the Trust to distribute to the beneficiary as the Trustee sees fit.
While the beneficiary has no individual control over the assets and income of the Trust and the Trustee has discretion as to how much to distribute to the beneficiary, so long as the assets continue to be held in the Trust, creditors cannot reach them. It is only once the beneficiary receives income or assets from the Trust that the protection no longer exists and creditors may then pursue such assets and income in payment of the debt(s) owed.
If you are considering your estate planning options, including potential strategies to protect your heirs’ inheritance from creditors, the lawyers at Jorgensen, Brownell & Pepin can certainly assist. Please contact us at 303-678-0560 or 970-304-0075 to discuss options tailored to your and your family’s particular needs.