Planning for the distribution of your assets after you pass away is a critical aspect of estate planning. If you have concerns about the financial acumen of a beneficiary, however, planning can become complicated. One way to resolve concerns about a beneficiary’s ability to manage an inheritance is to incorporate a spendthrift trust into your Tennessee estate plan. To better explain, a Murfreesboro estate planning attorney at Bennett | Michael | Hornsby discusses the advantages of including a spendthrift trust in your Tennessee estate plan.
Why Might I Need a Spendthrift Trust?
The idea that you will pass down an inheritance to a beneficiary who then squanders that inheritance in short order likely does not sit well
with you. Fortunately, a spendthrift trust can help with a potentially problematic beneficiary. Along with appointing a Trustee who will manage the inheritance held by the trust, you can also include specific terms within the trust agreement to further protect the beneficiary from his/her own risky financial decisions. A spendthrift provision within a trust serves to prevent a beneficiary from selling or encumbering their interest in the trust assets, while also safeguarding those assets from third-party claims. Whether your loved one is not adept at handling money due to youth, lack of experience, an addiction problem, or a mental health issue, a spendthrift trust can ensure that their inheritance is used wisely and lasts longer.
Spendthrift Provisions and Tennessee Law
In the State of Tennessee, Tennessee Code Annotated, Title 30, Section 35-15-502 governs spendthrift provisions within a trust. Tennessee law recognizes a spendthrift provision in a trust “only if it restrains both voluntary and involuntary transfer of a beneficiary’s interest.” The trust agreement must include a term providing that the “interest of a beneficiary is held subject to a “spendthrift trust,” or words of similar import, …to restrain both voluntary and involuntary transfer of the beneficiary’s interest.”
The Benefits of a Spendthrift Trust
If you have a problematic beneficiary, there is a good chance that you are also concerned about creditors of the beneficiary getting access to the inheritance you plan to leave behind. The good news is that a spendthrift trust can protect the trust assets from being claimed by creditors. In Tennessee, as in many other states, once the assets are placed in a spendthrift trust, they are generally shielded from creditors who might otherwise seek to attach those assets to satisfy debts.
Ultimately, a spendthrift trust provides long-term financial stability for your beneficiaries while also protecting the assets you passed down to your loved ones. Instead of receiving a lump sum that a beneficiary might quickly squander, a beneficiary receives periodic payments or distributions based on specific needs or milestones. This approach helps ensure that the funds will be available to support them over an extended period, providing financial security well into the future.
Finally, you can tailor the trust terms to suit the specific needs and circumstances of your beneficiaries. For example, you might include provisions that allow for larger distributions upon certain events, such as the completion of higher education, the purchase of a home, or the birth of a child. You might also increase the amount of each distribution as the beneficiary ages and matures or provide the Trustee with the discretion to decide when distributions should be made. An experienced estate planning attorney can help you customize your spendthrift trust to maximize the benefits to your overall estate plan.
Choosing the Right Trustee
Selecting the right Trustee is crucial to the success of a spendthrift trust given that the Trustee will have significant responsibility and discretion in managing the trust assets and making distributions. As the Grantor (creator) of the trust, you can appoint a family member or friend; however, you may wish to consider appointing a professional Trustee. A professional Trustee, such as a bank, law firm, or trust company, brings expertise and impartiality, which can be particularly beneficial if family dynamics are complicated or if the trust assets are substantial and require professional management.
Contact a Murfreesboro Estate Planning Attorney
If you have additional questions about incorporating a spendthrift trust into your Tennessee estate plan, consult with an experienced Murfreesboro estate planning attorney at Bennett | Michael | Hornsby as soon as possible. Contact the team today by calling 615-898-1560 to schedule your free appointment.
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