A spendthrift trust makes a trustee to control the assets you leave your heir. With these trusts, the beneficiary can’t spend the money unless he or she actually gets a distribution. So, say you left your daughter money in a trust with a spendthrift provision. It’ll help protect her from her poor financial choices. This way, she can’t get to all of those funds at once.
In many states, creditors generally can’t get to the spendthrift trust, except distributed funds. Still, most states require certain obligations like child support or alimony get paid from the spendthrift trust if needed.
A California Supreme Court decision changed things up for beneficiaries. In California, creditors can even reach funds yet to be distributed. The Supreme Court in California examined the provisions of the California Probate Code. It decided creditors can reach un-distributed spendthrift trust funds and their principals. They found that a “general creditor may reach a sum up to the full amount of any distributions that are currently due and payable to the beneficiary.” Plus, they “separately may reach up to 25 percent of any payments that are anticipated to be made to the beneficiary.”
So, a spendthrift trust can offer a lot of protection to an irresponsible beneficiary. Still, it won’t completely protect their inheritance and future payouts in California.
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