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What is a spendthrift trust?

If you and your spouse are like most California parents, you make every effort to raise your children to become responsible adults, financially and otherwise. Unfortunately, these lessons do not always take with some kids, particularly when it comes to handling money responsibly. Today’s “I want it now and I don’t want to wait” culture provides your children with an influence every bit as large as your own more conservative and wise approaches to spending.

Should you now find yourself in the position of having considerable wealth to pass down to your children but not trusting what they might do with it, you may wish to consider establishing a spendthrift trust for each of your kids. As reported by Forbes, you can do this now by means of inter vivos trusts, i.e., those you set up during your lifetime, or by means of your will and/or other testamentary documents.

How spendthrift trusts work

As with any type of trust, you have great flexibility when it comes to choosing the provisions you want your spendthrift trusts to contain. For instance, you can instruct that each child’s trust will remain effective until his or her 35th birthday or some other age at which you think (s)he will be mature enough to responsibly handle his or her own assets. When (s)he reaches that age, the trust ends and the trustee disburses all of its assets to your child. Prior to his or her 35th birthday, however, you can instruct that the trustee make only periodic payments, similar to an allowance, to your child from the income the trust assets produce while not allowing him or her to invade the trust’s principal.

On the other hand, if you fear that one or more of your children may never become financially responsible, you can instruct that the trust remain in effect throughout his or her lifetime. In this type of situation, you can instruct the trustee to give your child a lifetime monthly allowance from trust income only or distribute a percentage of the trust’s assets to him or her in installments over whatever period you choose, such as annually, every fifth year, or whatever you feel is appropriate.

This is educational information only and not intended to provide legal advice.

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