Spendthrift provisions preserve and protect assets

A spendthrift provision can preserve assets in your trust and protect assets from creditors of your beneficiaries. A spendthrift provision A spendthrift provision is a fundamental part of a trust in a great estate plan.

Let’s talk about something called a “spendthrift provision.” It’s a big thing that distinguishes a trust from a will.

We’ll start with a scary story — true story. I’m administering probate of a pretty good size estate. The beneficiaries have a fairly decent idea of what their distribution will be at the end of the probate proceedings, and the estate receives a garnishment. A couple of the beneficiaries have an old judgement. The Executor [I mistakenly called this the Trustee on the video] and the attorney for the estate receive a garnishment on this judgement. It says, essentially “Dear Executor, here’s a lawful judgment against these two beneficiaries, so to the extent that the estate is going to pay out to them, first this creditor gets their money.” There’s not a happy ending to that story, unless you’re the Creditor. The beneficiaries had a large chunk of the distribution pulled from the estate lawfully by the Creditor. If Mom and Dad had a trust, on the other hand, that trust very likely would have included a spendthrift provision.

First of all, because the trust doesn’t go through probate, the Creditor doesn’t know there’s a distribution out there. [Probate of a Will is a public proceeding, so creditors are notified by newspaper and/or mail that Estate proceedings have commenced.] There is not a mechanism to chase down those funds. But even if they tried, a trust should have contained a spendthrift provision which would provide the trustee a way to safeguard those distributions, and provide the trustee with discretion to not pay out those funds to the Creditor. Instead the Trustee would pay those to the beneficiaries, who then decide when and how they pay that creditor.

A spendthrift provision is a fundamental part of a great estate plan (primarily a Trust). I hope I can be of more help to you in this area. You can always reach me at Estate Plan Kansas.