What you should know about spendthrift trusts

Do you want to make a trust for your child, but you want to keep him or her from squandering the inheritance? If so, a spendthrift trust might be the way to go. This type of trust ensures that the beneficiary will not be able to mishandle your assets.

While a spendthrift trust can be very helpful, there are some factors you should consider before you sign the dotted line.

Limiting transactions

You can specify what type of payments are allowable with a spendthrift trust. This is where you should think hard about what will benefit your child most. You might only allow for certain types of expenses, like medical bills, food or school tuition. You can also keep your child from selling your assets away. How strict you make the provisions should depend on how much you trust your child’s judgment.

Avoiding creditors

If creditors ever try to seize your child’s assets, the provisions you put on a spendthrift trust can protect the assets inside. Anything your child has not yet received is off-limits to creditors. However, in North Carolina, a creditor might be able to claim assets your child already has on hand. You should carefully time the distributions if creditor trouble is a concern.

Sometimes you have to put some restrictions in place in order to help a loved one. A spendthrift trust gives you a better idea of where your assets are going and how useful they will be. By planning ahead, you can optimize the trust for your child’s benefit.