Many individuals worry that their heirs, who are often children or grandchildren, will foolishly squander all of the assets in their wills and trusts that they have worked so hard to leave for their heirs. One prime example is if a child historically has had a substance abuse problem or drug addiction. As a parent, you might be reluctant to give your child a large sum of money all at once, out of fear that he or she would spend it all on drugs or other rash purchases. Fortunately, there is a mechanism in Michigan estate planning law that permits you to place protections or limitations on an inheritance for your child; in your trust, you can include a spendthrift provision as part of your overall estate plan.
A spendthrift provision directs the trustee to only release funds to your child in certain amounts or situations. For example, a spendthrift provision could require the trustee to only release funds to the child for basic living expenses. On the other hand, a spendthrift provision could limit your child from accessing more than a specific amount of funds each month, quarter, or year. You also can use this type of provision to prevent your child from receiving any funds except for educational purposes until the age of 25. Another example would be using a spendthrift provision to prevent your child from getting any cash at all, by only allowing the trustee to directly pay certain expenses on behalf of the child. Essentially, you can include a spendthrift provision in your trust that addresses whatever your concerns are about your child receiving assets from your trust.
The other benefit to a spendthrift trust provision is that with a few narrow exceptions, trust property does not become subject to the enforcement of a judgment against your child until it is actually distributed to him or her. As a result, a spendthrift provision can protect the trust assets for a child who has racked up consumer debt or otherwise has a judgment against him or her. Keep in mind however, that a former spouse or child who has a judgment for support or maintenance typically can reach the trust assets, as well as the state and federal governments. There is also an exception for a judgment creditor who provided services to enhance, reserve, or protect the beneficiary’s trust interest.
At Legacy Law Center, we are Michigan estate planning lawyers who dedicate our practice to protecting your interests, as well as the interests of your family. Creating a comprehensive and effective estate plan is no small task, and we know that you will need guidance in navigating through this often complex process. Call our Ann Arbor office today to set up an appointment and learn how to best protect yourself and your family.
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