What is a Spendthrift Trust?
When setting up your trust, consider the benefits of Spendthrift Trust. As you make a plan for your beneficiaries to take over your property, you may realize that those assets you worked so hard to leave them are exposed to the myriad of creditors that your children accumulate over life. Most people, however, wish the assets they have left behind to provide for the care of the beneficiary, not the people that those beneficiaries owe money to.
A spendthrift trust can offer protection to help alleviate this problem.
A trust in Texas can gain the added protection of a spendthrift trust by the addition of the correct language into the trust agreement. When the trust is structured properly, this added protection protects the trust property from the creditors of the beneficiary. When coupled with added discretionary powers to a trustee, creditors cannot force a trustee to pay the debts of the beneficiary, even if they go through a bankruptcy.
This protects your gifts from being wasted after life, allows a trustee to help a beneficiary to get back on their feet, and more closely mimic the way you would have used the money for your beneficiary if you were here to do it.
There are several exceptions to utilize spendthrift protection in Texas:
- Child support payments:
A court may always reach trust funds for child support obligations of a beneficiary. If the trustee has discretionary control over payments, the court is limited to the interest earned by the trust property. Texas Family Code §154.005.
- Federal tax obligations:
The government can overrule spendthrift protection to get trust assets for federal tax obligations.
- Self-settled trust:
Texas does not allow a person to put property into trust for themselves and then get the protection of a spendthrift trust. Texas Property Code §112.035(d). Sorry, you still have to pay your own creditors!
Spendthrift protection is just one of many additions to trusts that help you leave your property to your loved ones in the best possible way. Contact the Malolo Law Firm today to find out more about this great tool for your estate plan!
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