A well-written, complete estate plan gives the maker a sense of contentment, peace of mind, and accomplishment. However, while drafting a Will or trust, people may ask themselves some tough questions about the fiscal responsibility of their beneficiaries. Fortunately, estate planning tools like spendthrift provisions may take care of the irresponsible heirs in our family trees.
Spendthrift Provisions and Minnesota Law.
A spendthrift provision in a Will or trust is valid under the following conditions:
(1) both voluntary and involuntary transfers of a beneficiary’s interest are restricted; or
(2) the trust document states an intention to impose both voluntary and involuntary transfers of a beneficiary’s interest.
If a beneficiary cannot voluntarily transfer assets from a trust, then creditors cannot involuntarily remove assets either.
Benefits to Beneficiaries.
Under a trust or Will with spendthrift provisions, heirs cannot squander an inheritance before they receive it. In other words, beneficiaries cannot promise trust funds to third parties. Beneficiaries may also enjoy some protection from lawsuits.
When spendthrift provisions are used, heirs working in high liability professions have a layer of protection between their inheritance and civil judgments. If your daughter is sued for medical malpractice and loses the lawsuit, a spendthrift trust may protect her inheritance from the resulting judgment.
In addition, spendthrift provision may be useful in special needs planning. When an heir is considered disabled or has a potentially disabling condition, money can be protected for future treatment and care.
Exceptions to Spendthrift Provision.
When deciding how much money will be disbursed to your heirs, remember that the protection of the spendthrift provision ends when your heir receives his or her disbursement. Once the beneficiary receives a distribution from the trust, it become fair game for creditors.
While some states allow assets from spendthrift trusts to be used to pay alimony and child support obligations, Minnesota does not.
It may be hard to face the fact that some of your loved ones need protection from their own worst instincts. However, thoughtful use of a spendthrift language in a Will or trust may mean your heirs will truly be able to enjoy their inheritance.
At Virtus Law, we have the experience and skills to analyze your current estate plan and make any necessary changes. Contact us by calling 612.888.1000 or by emailing us at firstname.lastname@example.org. We look forward to helping you in one of our conveniently-located office in Minneapolis, Edina, Mendota Heights, and Red Wing.