 |
|
|
|
|
|
|
|
|
|
|
|
|
|
 |
| ||||||||||||
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|
by Michael Angelo Maccagnan
Recently, I was speaking with a client who has a substantial estate and only two daughters to leave it to. She had some concerns about how one of her daughters would handle the money when she’s gone since that daughter, let’s call her Libby, at 44 was not financially savvy and, in fact, was never able to accumulate any savings on her own. Bluntly, Libby did not know how to control her spending and was often at the mercy of creditors, and usually having to borrow money from mom to pay her debts. Do you know anyone like that?
How can mom help protect Libby from her own bad habits? The answer may be a spendthrift trust. The spendthrift trust provides the maximum amount of protection from the creditors of the beneficiary. It is intended to protect particularly improvident children of the testator such as Libby. With a spendthrift trust in effect, creditors won’t be able to attack the assets held in the trust, even in the event of bankruptcy and Libby can live according to her lifestyle without putting those funds at risk. The spendthrift trust also protects the funds from the clever beneficiary that may try to assign their expectancies from the estate to someone else before the funds are paid.
A spendthrift trust is an irrevocable trust created for the benefit of the beneficiary (Libby). The trustor (mom) is NOT allowed to be the trustee and the distributions from the trust must be in the trustee’s discretion. This means there cannot be a mandatory withdrawal schedule. The trustee will decide how much principal and income payments are needed in accordance with an ascertainable standard. The language generally used to outline this standard is the ''health, education, support, and maintenance'' of the beneficiary. This is broad general language that allows the trustee to grant funds to the beneficiary in whatever installments the trustee deems the beneficiary should use to maintain the standard of living.
What if there is an out of the ordinary expense Libby needs to spend money on? Let’s say she needs to make a purchase such as a car, put a down payment on a home or start a business. No problem. The trustee can make a distribution to cover the cost of these more expensive items. The trustee can be anyone, except the person setting up the trust. The trustee can be a financial advisor, attorney, bank trust department or other family member.
In the example above, Libby was well into her adult life and proved to her mother that a spendthrift trust is the only way in which to protect her from herself and it would therefore be necessary that the payments be made over her lifetime. However, frequently I have clients with minor children and they are simply worried about the “youth factor” or inexperience in dealing with money. In this situation the trust is modified to allow the child to receive periodic payments when the child reaches milestone ages, such as 21, 25 and 30. By then the child has hopefully learned responsibility with their funds.
One way to help ensure the legacy you leave will have a lasting effect on your heirs is through a spendthrift trust.
Michael Angelo Maccagnan is a partner with the law firm of Angelo & Angelo, LLC. If you would like more information, you can contact him today for a no obligation consultation at 412-613-7978 or by email michael@angelolawfirm.com .
