Setting up a spendthrift trust for your loved one is a good way of securing your loved one's financial future if you don't have faith in their financial management. This is because the spendthrift trust limits the beneficiary's access to the trust funds and allows them to enjoy the funds under certain conditions. Here are four things you need to decide on to make your spendthrift trust effective:
How the Payments Are To Be Made
Specify how the trustee will distribute the payments to the beneficiary. For example, if you want the trustee to withdraw the funds and give it to the beneficiary, put it down in writing. If you want the trustee to buy goods and services on behalf of the beneficiary, that is what you should specify. You can even ask the trustee to service the beneficiary's credit card loans or op up their debit cards. In short, specify how the money will move from the trust account to the beneficiary's hands.
The Frequency of the Payments
This is another crucial that you should decide on beforehand to avoid potential conflicts between the trustee and the beneficiary. Decide whether the payments should be monthly, annually, bi-annually or even quarterly. Consider the needs of your beneficiary as well as the cost of transferring these funds when making the determination.
The Payment Amounts
You also need to decide whether the beneficiary will be receiving specified amounts or whether you are leaving the determination on the hands of the trustee. If it is the former, then you should also decide what these amounts should be. Don't forget to include whether the amounts should be increased, and by how much, after a certain period. This is useful because the needs of the beneficiary may change with time, for example, when they get married or have children.
Whether Payments Can Be Withheld
Lastly, you also need to specify whether the beneficiary should receive the payments at all costs or if they should be withheld under certain circumstances. If the payments can be withheld, then you need to specify who has the power to determine whether to withhold the payments. If you are the one to determine when to withhold the payments, then state your conditions clearly on your estate planning document.
Just like other forms of trust funds, there are legal regulations to follow to ensure your trust is valid and free of controversy. Consult a lawyer, like one from Fessenden Laumer & DeAngelo, PLLC, to help you set up the trust; don't let a legal technicality complicate issues for your loved ones.