Most of us have the best intentions when making decisions about who will get our property after we’re gone. Developing a comprehensive estate plan usually gives us a sense of accomplishment and peace. However, we may start having strong doubts about some of our heirs like: Will my heirs be able to manage a large sum of money or valuable property? Are they fiscally responsible? Fortunately, spendthrift provisions allow us to engage in long-term protection for any irresponsible, yet still lovable, family members.
Spendthrift Provisions and Minnesota Law.
A spendthrift provision in a will or trust protects both voluntary and involuntary transfers of the beneficiary’s interests. Creditors cannot involuntarily remove funds if the trust document prohibits the beneficiary from voluntarily transferring funds from the trust.
Beneficial to Beneficiaries.
Spendthrift clauses stop irresponsible beneficiaries from squandering an anticipated inheritance. Potential heirs cannot legally promise trust funds to a third party. Beneficiaries, then, have some protection from civil judgments and creditors.
A spendthrift provision may even be used for special needs planning. When an heir is considered disabled or suffers from a potentially disabling condition, money will often be saved or transferred to a trust to pay for future care. Vulnerable beneficiaries can be protected from some claims by using spendthrift language in a special needs trust.
Other beneficiaries may work in high liability professions, like the medical field. Spendthrift trusts provide a level of protection between their inheritance and potential civil judgments obtained in a lawsuit. For example, if your daughter loses a medical malpractice lawsuit, at least a portion of her inheritance will be safe.
Spendthrift Provision Exceptions.
Remember that distributions made to heirs are no longer protected by the spendthrift provision. Once the money is in their hands, it becomes vulnerable to creditors.
Creditors may be allowed to compel payment if the trustee is required to make mandatory distributions or if the beneficiary is the trustee.
Consider All Your Options.
When you begin preparing your estate plan, consider whether some beneficiaries might need the protection offered through spendthrift provisions.
At Virtus Law, we know that family issues can make it difficult to talk about estate planning. To schedule an appointment with one of our estate planning attorneys, contact us at 612.888.1000 or send an email to email@example.com. Our main office is in Minneapolis, but we serve other communities like Edina, Mendota Heights, and Red Wing.