A trust is a legal arrangement in which one person, the trustor, transfers property to another person, the trustee, to hold and manage for the benefit of a third person, the beneficiary. There are many different types of trusts in Connecticut, but spendthrift trusts are particularly well-suited for children who may have trouble managing their finances.
What is a spendthrift trust?
A spendthrift trust is a type of trust that helps to protect the assets from the beneficiary’s creditors. That means that if the beneficiary has any financial problems, the creditors cannot come after the assets in the trust. The trustor can also specify how and when the trustee can distribute the assets to the beneficiary.
For example, let’s say that you have a child who is struggling with addiction. You might put some money into a spendthrift trust for them so that they can’t access it all at once and spend it on drugs or alcohol. Instead, the trustee can distribute the money to them bit by bit, as long as they’re following their treatment plan. This can be a really useful tool for estate planning, because it can help you make sure that your children are taken care of financially even if they have some problems later on in life.
Types of spendthrift trusts
There are two main types of spendthrift trusts: discretionary and mandatory. Discretionary spendthrift trusts give the trustee complete discretion over how to distribute the assets while mandatory spendthrift trusts require the trustee to distribute the assets according to a set schedule.
Discretionary spendthrift trusts are more flexible, but they may be more difficult to set up. Mandatory spendthrift trusts are easier to set up, but they may not be as effective at protecting assets from creditors.
If you’re considering setting up a spendthrift trust for your child, it’s important to understand the process and the different types of spendthrift trusts. It’s also important to consider the issues your child might face in the future and how the trust can help them before making any decisions.