How a Spendthrift Provision Can Help Protect Your Assets
The primary function of estate planning is protecting your assets, and one tool for achieving that end under Florida law is a spendthrift provision (also known as a “restraint on alienation provision”). A spendthrift provision can apply to revocable and irrevocable trusts, and it essentially serves as a limitation on how the trust money can be spent–or, rather–how the beneficiaries can access it. A spendthrift provision, executed correctly, prevents creditors from attaching to or taking away a beneficiary’s interest in the trust. Florida law supports the enforcement of these provisions provided they apply equitably to both voluntary and involuntary transfers (meaning the beneficiary can’t give away their share in the trust, and also that it can’t be taken away from them).
The Benefits of a Spendthrift Provision
When it comes to trusts, spendthrift provisions have two major benefits that shouldn’t be ignored. For one, a spendthrift provision may protect your assets from most civil judgments and creditors. In other words, the beneficiary of the trust cannot be compelled to use funds from the trust to pay their debts. For instance, if Beneficiary X owes a creditor $10,000, even if Beneficiary X does not have the funds to pay the debt, the creditor cannot compel payment from the trust. There are a couple of exceptions worth noting. For one, while the creditor cannot compel payment from the trust. If the beneficiary receives an unrelated disbursement from the trust, the creditors can then pursue payment from that distribution, since it is now the property of the beneficiary, and is no longer protected by the trust. Another exception to this is in situations where avoiding payment would go against public policy, such as with child support payments, and certain civil judgments. It’s believed that the inclusion of this provision allows the grantor to protect the trusts’ assets (and their legacy) for future generations. Another key benefit of including a spendthrift provision, is that it prevents beneficiaries from selling or transferring their interest in the trust, ensuring that the grantor’s wishes are respected and not deviated from, and protecting the contents and purpose of the trust.
The Mechanics of a Spendthrift Provision
A spendthrift provision can be included in a revocable or irrevocable trust. Often, a trust with a spendthrift provision will be set up like a discretionary trust. In this case, a trustee (or someone who acts as a manager of the trust) will control the trust and have complete discretion as to when distributions are made to beneficiaries. The trustee acts in strict accordance with the guidelines established by the grantor, and in doing so, ensures that the grantor’s wishes and intentions for the trust are honored and that the assets of the trust are suitably preserved for future generations.
Schedule a Consultation
If you have questions about estate planning, or want to make sure your assets and loved ones are protected long after you’re gone, the Law Offices of Larry E. Bray are here to help. Call today to schedule a consultation. West Palm Beach estate planning lawyer Larry E. Bray has over 35 years of experience helping local businesses and families plan for the future. Don’t spend one more day worrying about your assets. Get the peace of mind that comes from knowing everything is taken care of, and call today.