Leaving behind a large inheritance can be worrisome, especially if your loved ones may deplete the assets immediately or lose the assets to creditors. A spendthrift trust allows estate planners to protect and preserve their legacy. When using a spendthrift trust, estate planners can ensure that their property and assets remain protected so they can pass as much as possible to loved ones.
A spendthrift trust allows estate planners to leave an inheritance while protecting your assets from being depleted too quickly. If you have questions about whether a Mississippi spendthrift trust is right for you, the experienced estate planning attorneys at Palmer & Slay, PLLC are here to answer your questions. Contact Palmer & Slay, to schedule an initial consultation and learn more about how we can help you.
What Is a Spendthrift Trust?
The word “spendthrift” refers to people who may waste money due to being defrauded or influenced by others or due to their own poor financial judgment. A trust can be created to protect the property of spendthrifts. When establishing a spendthrift trust, you can appoint one or more trustees with the discretion to control disbursements in order to protect trust assets from waste. The trustees you appoint will have the legal authority to decide how much money the beneficiary will receive and how and when the beneficiary will receive that money.
For example, suppose the beneficiary is a 21-year-old college student. The spendthrift trust may pay the beneficiary a specific amount each month to be used for rent, tuition, or other necessary or reasonable college-related expenses. Trust assets are safe from the beneficiary’s creditors because the beneficiary doesn’t have control of the assets in the trust. As an estate planner, you can determine whether the beneficiary will receive all of the assets at some point in his or her life, such as when they turn 30 or 35. In other cases, you may want to continue to limit disbursements to a specific amount each month for asset protection purposes.
Spendthrift Trusts Provide Asset Protection
When there is a valid spendthrift provision in a trust, creditors cannot reach the beneficiary’s interest in the trust unless or until the assets are paid to the beneficiary from the trust. In other words, if the beneficiary owed creditors money due to credit card debt, a lawsuit judgment, or other debt, the creditor generally cannot access the funds in the trust. Once the trust assets have been paid to the beneficiary, however, creditors can access the funds.
The assets within a spendthrift trust are never completely safe from every creditor. There are some exceptions to the general rule that assets in the spendthrift trust are protected from creditors. Federal and state governments can access funds in the trust to settle debts to the government, such as unpaid taxes.
Assets in the trust are not protected from spousal support and child support. Additionally, those who preserve the beneficiary’s interest can access the assets in the trust, such as the beneficiary’s attorney. The fifth exception is a catch-all provision for being a necessities provider.
You may be wondering whether you can create a spendthrift trust to protect yourself and your assets from your own creditors. Most states do not allow self-settled trusts. However, In Mississippi, self-settled trusts are considered legally valid when they are correctly written. These trusts are also called “asset protection trusts.”
With an asset protection trust, the estate planner creates the trust, transfers assets into the trust, and can manage the trust as the trustee. Creditors can no longer reach assets in the trust for personal debt. If you have questions about whether a self-settled or asset-protection trust is right for you, the attorneys at Palmer & Slay, PLLC are here to help.
How Much Control Does the Trustee Have Over the Assets?
A trustee’s powers can be as limited or extensive as you like. The amount of discretion you give trustees will depend on your particular concerns about the beneficiary in question. When creating a spendthrift trust, you can be very specific about the terms, including:
- How often your beneficiary receives payouts
- When and how the trust assets may be used to pay for specific types of expenses
- Whether there are circumstances in which payments to the beneficiaries should be withheld
For example, the trust agreement can state that if the beneficiary begins gambling heavily, using drugs, abusing alcohol, or engaging in other behaviors that are financially irresponsible, the trustee can withhold funds. As the trust’s creator, you can also give the trustee power to decide when and how the beneficiary can use the money in the trust.
How Do I Establish a Spendthrift Trust in Mississippi?
The spendthrift trust must be carefully drafted to be enforceable and effective. Creating a spendthrift trust is complex, and working with an experienced attorney who understands Mississippi estate planning laws is crucial. Before you create the trust agreement, you’ll need to designate one or more trustees and determine which assets you will transfer into the trust. You’ll also need to carefully consider what restrictions you’d like to put on how and when the beneficiary can receive trust assets.
Can I Appoint Myself As the Trustee?
As the creator of the spendthrift trust, you can appoint yourself as the trustee during your lifetime. However, you must name someone to succeed as a trustee upon your death. Serving as a trustee is a demanding role that requires hard work and honesty.
Discuss Your Case with a Skilled Spendthrift Trust Attorney
Spendthrift trusts are powerful tools that protect your loved ones from poor financial decisions. At Palmer & Slay, PLLC, our estate planning attorneys assist Mississippi residents in creating spendthrift trusts to safeguard their beneficiaries’ financial futures. When used in a comprehensive estate plan, spendthrift trusts can be an effective legal tool to meet your needs and goals. Contact Palmer & Slay, PLLC to learn more about how we can help you create a thorough, effective estate plan.