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What's a spendthrift trust?

Let's say that you want to leave a large portion of your estate to an heir who is -- in your opinion -- less than financially responsible. You might be concerned that your heir will quickly spend all of the money that he or she receives. You might also know that with a sound financial strategy, the money you leave behind will be enough to last your beneficiary for the rest of his or her life.

It's in these circumstances that a spendthrift trust can be a practical solution. A spendthrift trust doles out the money you leave to your beneficiary in small payments over time so that your beneficiary cannot spend it all at once. Although a spendthrift trust might not be the favored solution of your beneficiary, in the long run, he or she will eventually come to understand the wisdom of your ways -- especially if the structured trust payments offer him or her financial security for many years to come.

Spendthrift trusts offer another practical benefit as well. Perhaps your financially irresponsible heir has accrued a massive amount of debt. A spendthrift trust will not be accessible to your beneficiary's creditors. This will preserve the principal of the trust from being depleted by those to whom your beneficiary owes money.

It's important to note that the trustee of your spendthrift trust will be in charge of doling out the money to your beneficiary over time. Due to the nature of this responsibility, it's advisable not to name a family member -- especially not a sibling -- as the trustee, as this could create a point of resentment between your children.

Spendthrift trusts need to be structured appropriately, with an eye for avoiding future legal problems. As such, Tennessee residents may want to get the help of a professional. An experienced estate planning lawyer can help you avoid legal issues and ensure that your spendthrift trust is suitable for you and your family's needs.

Source: Mary C. Lagrone, "Money Talk: How to structure an inheritance for a spendthrift heir," Liz Weston, accessed April 19, 2017

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