A spendthrift trust is designed to protect the assets of a beneficiary who may be irresponsible or lack financial literacy. If you have concerns that a loved one or another beneficiary may squander an inheritance, establishing a spendthrift trust is the smart choice. 

At the Law Office of Carey Thompson, PC, we work with clients in El Paso and around Texas to create spendthrift trusts as part of a comprehensive estate planning strategy.  By working with our experienced trusts and estates attorney, you will have comfort knowing that your assets and your loved ones will be protected. Contact our office today to get started. 

What is a spendthrift trust and who does it protect?

A spendthrift trust is an irrevocable trust that limits or controls the beneficiary’s access to the trust assets. This estate planning tool is designed to protect the trust principal from a beneficiary who:

  • Cannot manage money
  • Is frequently delinquent with debt
  • Has a drug, alcohol, or gambling problem
  • Might easily be manipulated 

In a spendthrift trust, the person making the trust (the settlor) does not provide assets or funds directly to the beneficiary. Instead, a trustee is designated to manage the trust assets and either provide regular payments to or purchase goods and services for the beneficiary.

For the trust to be valid, the trust document must contain certain provisions required under the Texas Trust Code. This includes (1) a prohibition on the voluntary or involuntary transfer of trust principal for payment or delivery to the beneficiary, and (2) a declaration that the interest of the beneficiary is subject to a spendthrift trust. 

In short, a spendthrift trust restricts the beneficiary’s access to the trust property. Because the beneficiary cannot access the trust principal or promise it to anyone else, the trust funds are protected from creditors’ claims. Once payment is made to the beneficiary, however, that money is available to creditors. Our capable attorneys are here to help guide you through the process of creating a well-conceived spendthrift trust. 

The Trustee’s Duties

In a spendthrift trust, the designated trustee is responsible for both managing the trust and preventing the beneficiary from spending through the trust assets. More importantly, the trustee has a fiduciary duty to act in the best interests of the beneficiary and to preserve the value of the trust assets. To achieve these objectives, the trust document should authorize the trustee to:

  • Make set payments to the beneficiary on a regular basis
  • Withhold payments under certain conditions, such as when the beneficiary gambles or gets into debt
  • Specify the conditions for releasing payments to the beneficiary
  • Make payments to third parties (e.g. landlord, creditor) rather than the beneficiary

Depending on the circumstances, the beneficiary may be required to undergo drug or alcohol testing before receiving a payment from the trustee. However, requiring the trustee to monitor the beneficiary’s behavior this closely could become problematic for the trustee.  

In any event, a spendthrift trust must consider the unique relationship between the trustee and the beneficiary. It is crucial for the trustee to be honest and capable of fulfilling his or her fiduciary duty to preserve the trust assets and provide for the beneficiary. While it is common to name a family member or trusted friend, it is also possible to name a corporate trustee (e.g a bank, law firm). Working with a neutral third party as trustee can lend objectivity to the process and help to mitigate the risk of mismanagement and/or disputes.

Why You Need a Spendthrift Trust Attorney

Establishing a spendthrift trust is challenging. These complicated instruments must adhere to Texas law and may place a considerable burden on the trustee to monitor the beneficiary’s conduct. For these reasons, it is wise to work with the capable trusts and estates attorneys at our firm. 

We will take the time to listen to your concerns and address those concerns by providing you with informed representation and caring, efficient service. Trust our legal team to guide you through the trustee selection process and tailor a spendthrift trust to your unique needs. 

Because the trustee will have important duties in administering the trust, we will make sure the trustee’s powers are clearly defined. Above all, we will help you create a well-conceived trust that provides for your loved one and preserves your legacy. 

Helping Clients In Dallas-Forth Establish Spendthrift Trusts

The trusts and estates attorneys at the Law Office of Carey Thompson have a well-earned reputation for adhering to the highest standards of professional excellence. When you consult with us, you will find a welcoming environment in which you can make informed decisions about your financial future. We all want what’s best for our loved ones, even if that means protecting them from their own poor judgment. Let us help you create a spendthrift trust that protects your family. Contact our office today to set up an appointment.