Spendthrift Trust
By: Dr. Ronald J. Trevisani
We welcome financial and legal pearls from Dr. Trevisani, who was invited to join the Resnik Implant Institute as a faculty member. Ronald J. Trevisani is a Pharmacist, Dentist, Oral and Maxillofacial Surgeon, and Licensed Attorney in Florida. He has multiple oral surgery centers in Florida and a law firm specializing in asset protection and estate planning for Dentists and Physicians. He welcomes questions & comments for both Legal and Financial matters.
The “Spendthrift Trust,” sometimes called a “Spendthrift Clause” or “Provision,” is an important component of an asset protection program. The primary goal of a spendthrift provision within a Trust is to maintain control of the distribution of the assets of the estate after the grantor’s death. Additional reasons for including a spendthrift provision are to minimize estate taxes and avoid issues with probate. Of significance is that the spendthrift trust has the ability to protect the beneficiaries from both current and future creditors.
This article will address the creditor protection benefit for beneficiaries within the trust. A spendthrift trust is a legal document that limits how much a beneficiary receives from the Trust when those funds will be distributed, and under what circumstances. The goal of a spendthrift provision within a trust is to prevent the beneficiary from wasting resources. These protections include unnecessary, wasteful spending, poor investment decisions, and protection of assets from creditors. This provision may prevent a beneficiary, who may not be able to handle immediate wealth, from wasting the resources within the trust. For example, this prevents a teenager or immature adult from receiving the funds and utilizing them in a non-ideal fashion (e.g., Buying a Ferrari, Lavish Vacations, Gambling, etc.) Also, this prevents a creditor from forcing the distribution of these assets to cover an outstanding debt.
How Does this Spendthrift Provision Work?
When a trust contains a spendthrift provision, a beneficiary’s creditors cannot force the distribution of the assets to satisfy the debt. The trustee must follow the wishes of the Grantor and protect the assets in the beneficiaries’ best interests. For example, a trust with a spendthrift provision is set up for the educational requirements of a beneficiary. This beneficiary owes $100,000 due to a bad investment. The creditor then requests these funds to be distributed. The trustee can refuse to distribute the funds to the creditor. The funds are protected for the educational requirements of the beneficiary. However, once these funds are released to the beneficiary, the creditor can use whatever legal resources he has to access these funds. If these funds are now the beneficiary’s property, the spendthrift provision within the trust does not apply. Thus, the importance of the Spendthrift provision protection can easily be seen with respect to creditors. Of course, there are always exceptions. In Florida, the exceptions include child support responsibilities (court ordered.), and the spendthrift provision does not apply if the beneficiary has any Federal or State Tax liabilities. More details next month.
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The Florida Bar-2021