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What is a spendthrift trust?

Many Oklahomans who want to leave money for their beneficiaries after their demise use trust structures. Those who worry about their beneficiaries' money management skills may take the additional step of designating their trusts as spendthrift trusts. These structures are expressly designed to give their creators a greater degree of control over the disbursement of the assets they leave behind.

Spendthrift trusts can function in various ways. In some cases, they include explicit instructions to the trust's administrator directing them to cap the benefits they give out each year at a predetermined cash value. Such funds are protected from creditors while they remain under the trustee's administration. After they transfer to the beneficiary, however, they become eligible for legal seizure and debt garnishment as supplemental income. It's important to note that the types of permissible seizures and legal procedures that must accompany them vary from state to state.

Other parties may be able to access the interest derived from a spendthrift trust. In cases where disabled beneficiaries require special needs trusts, for example, their caregivers or medical support staff can use the beneficiary's interest in an official capacity.

While creating a spendthrift trust for a beneficiary prevents them from burning through their interest on their own, it doesn't provide them with complete protection from legal claims. Variances in Oklahoma law and changing public policy may also make it harder to create terms and arrangements that serve the best interests of a beneficiary, especially when they face health issues or other hardships. Many Oklahomans seek legal assistance in order to draft trust terms that can be reasonably expected to provide for their loved ones and deal with complex asset disbursement arrangements.

Source: The Free Dictionary, "Spendthrift Trust", October 29, 2014

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