Using a Spendthrift Trust for Addicts

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Using a Spendthrift Trust for Addicts • A spendthrift trust is one of the best options when estate planning for addicts. There are several forms of this trust a parent can consider, and each has pros and cons. At it’s most basic, the spendthrift trust enables a parent to put spending authority in the hands of a trustee, or a trusted person who will control the reckless spending of the child. This can prevent them from wasting funds and can prevent them from using funds to purchase drugs. • Spendthrift clauses in trusts are also valuable because a parent can use them to provide necessary funds such as child support, alimony, food, and shelter to the beneficiary, without allowing them to spend anything else. This enables a parent to offer support, even after a parent are deceased. • Finally, spendthrift clauses typically protect the funds in the estate from creditors. So long as the funds are in the trust, creditors cannot reach them. This is ideal in instances where the child may have to declare bankruptcy due to poor financial decisions while under the influence of drugs or alcohol, has a large amount of debt, or is likely to accrue a large amount of debt. However, once funds are taken out of the trust, they can be garnished by creditors. • In some cases, a parent may be able to set up a discretionary spendthrift supplementary needs trust, which enables the child to qualify for needs-based government benefits (SSI, Medicaid, housing, SNAP, etc.), while offering the other benefits of the trust. • The best way to set this up is to create a Testamentary Discretionary Trust with a spendthrift clause, which will come into effect after a parent are deceased. Then, the funds will be moved into trust and spending will be controlled by the trustee for the benefit of the child (the beneficiary). • Source: https://beginningstreatment.com/estat... • Risk Avoidance • If the elderly parent transfers assets to children, rather than puts them in a trust, certain risks must be anticipated. These risks can be avoided if the assets are put in a trust. The risks of an outright transfer include: • • Claims of creditors. The claims of the creditors of the adult children could be satisfied through the assets of the parent if the parent makes outright transfers to the children. • • Matrimonial action. If a child to whom assets are transferred is subsequently divorced, the transferred assets may become subject to a claim of equitable distribution. While the law dictates that assets transferred from a parent to a child are not subject to equitable distribution, practitioners in the field of family law indicate that judges often find ways to give additional assets, other than the transferred assets, to the other spouse. In addition, the assets transferred could affect alimony or support rights or obligations. • • Bad habits. If a parent transfers assets to a child who is a gambler, a drug addict, an alcoholic, or a spendthrift, the assets may be squandered and no longer be available to the parent. • Source https://www.begleylawgroup.com/2009/1...

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