Spendthrift Trusts: Protecting the Beneficiary

There is an ever-present concern for providing the next generation with the right tools for success. While parents do their best to impart their own financial wisdom upon their children, some individuals require extra help. In terms of estate planning, this concern creates an additional need that is separate from personal asset protection and instead focuses on implementing strategies that protect intended beneficiaries from themselves. A variety of measures can be taken when creating a trust to ensure distributions are made to a beneficiary upon reaching a specific age or under specific conditions. Certain circumstances, however, may warrant taking the additional precaution of including a spendthrift provision to place a check on a beneficiary who lacks financial prowess or makes rash financial decisions.

Spendthrift provisions made under T.C.A. § 35-15-502 place certain restrictions on a beneficiary’s distribution interests and remainder interests. Under these restraints, a beneficiary could still receive trust distributions, but lacks decision-making power regarding the frequency of such distributions. Instead of the beneficiary having the final say over decisions regarding the trust, a designated trustee remains in place throughout the duration of the trust to oversee a responsible distribution of assets. Such a precaution can also have the added benefit of protecting the beneficiary’s interests from the claims of certain creditors.

Some common situations in which a spendthrift trust may help limit a beneficiary’s control include children with special needs, individuals who struggle with mental illness, individuals who struggle with addiction to drugs or alcohol, or additional circumstances which may lead to spendthrift issues.

A spendthrift provision is not a punishment to inflict on a beneficiary, but a tool to sustain the value of trust assets for his or her benefit. However, preparing the next generation for success makes it necessary for the current generation to be prepared. If you have serious hesitations regarding the fiscal responsibility of a loved one, it is best to discuss those concerns with an attorney with experience drafting and implementing such provisions and who can advise you of both the benefits and consequences of utilizing a spendthrift trust.

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