When you create a California estate plan, you likely do so with the hope of leaving as large a legacy as possible behind for your loved ones. However, if you have one or more beneficiaries who may have problems managing their finances, you may wish to take some extra steps to help protect everything you have amassed.
Per Annuity.org., one way you may be able to help protect your legacy while still providing for those you love involves creating a “spendthrift trust.”
How a spendthrift trust works
A spendthrift trust is similar to many other types of trusts in that you appoint someone trustee to manage it. Typically, you give this individual guidelines to follow as far as when to make distributions to your beneficiary and under what conditions. For example, you may want the trustee to make only small distributions at a time to control spending, or you may wish to have him or her only make distributions when the beneficiary marries, graduates or what have you.
What a spendthrift trust does
A spendthrift trust helps you accomplish two main things. First, it helps prevent your beneficiary from blowing through his or her inheritance prematurely. Second, it serves as a shield against creditors that need to collect past-due payments from your beneficiary. So, if, say, a credit card company comes after your beneficiary for not keeping up with bills, the money you left him or her in the spendthrift trust remains safe and untouched.
While a spendthrift trust is one potential way to help you leave a lasting legacy behind for your loved ones, there may be additional estate planning tools available that may further help you accomplish this goal.