Why Would You Consider a Texas Spendthrift Trust?

 Posted on July 09,2024 in Estate Planning

The underlying goal of most estate planning trusts is to protect the Grantor’s assets during their lifetime and then continue protecting those assets after death or incapacitation. While assets are protected, they are also used—by the Grantor and their beneficiaries. There are many ways a trust addresses specific situations. For example, a special needs trust allows the parent or guardian of an adult child with special needs to continue receiving government benefits while receiving their inheritance in a very controlled manner.

A Texas spendthrift trust may be a separate trust or a clause in a normal revocable living trust. One example of a spendthrift clause would be when a grandparent wants to leave his youngest grandson a gift of $150,000. The grandson has spent his teens and early twenties in and out of minor brushes with the law, including DUI.

When his grandfather gave him $25,000 at age eighteen, the grandson bought an expensive sports car, wrecked it, and had to be "bailed out" by his parents so he would have a vehicle to drive. As the grandfather prepares his estate plan, he realizes his grandson is not responsible enough to be given that much money in one lump sum.

After speaking to his Dallas estate planning lawyer about the situation, the grandfather decides to include a spendthrift provision for his grandson’s inheritance. The money would be given to the grandson over a period of time while the assets remain protected from potential creditors. If you believe one of your beneficiaries could benefit from a spendthrift provision or trust, speak to your attorney today.  

What is a Spendthrift Trust?

A spendthrift trust places restrictions on a beneficiary’s access to the principal left to them in a trust. Since the beneficiary is unable to access the principal, neither can his or her creditors. Instead of receiving a lump sum, the beneficiary has no direct access to trust property.

A Trustee will oversee regular payments from the trust or could provide goods and services, such as a vehicle, monthly rent, or college tuition. The terms of the trust will tell the Trustee how the trust principal is to be given to the beneficiary.  

There is distinguishing legal language for a spendthrift trust, including that the Trustee must adhere to an "ascertainable standard" when making distributions from the trust. This means the Trustee must stay within the trust guidelines as closely as possible and cannot ignore them.

Most spendthrift trusts allow distributions for "health, support, education, or maintenance." This wording creates an ascertainable standard or limitation to guide the Trustee when the beneficiary asks for additional funds. Texas courts have regularly upheld the ascertainable standard requirements.  

Under What Circumstances is a Spendthrift Trust Useful?

Spendthrift trusts may be used in many different circumstances when the grantor of the trust worries a gift could be squandered or taken by creditors. Some of the more common circumstances include:

• A beneficiary has demonstrated that they are not good with money, whether because they are young or have not learned to use their money wisely.
• A beneficiary has an addiction—usually to alcohol, drugs, or gambling—that increases the likelihood of the funds being squandered.
• History has shown that the beneficiary is easily deceived or defrauded.
• The beneficiary has a spouse who has problems that could spill over onto the beneficiary, causing them to lose their inheritance.
• Creditors are constantly after the beneficiary for money owed.

In any of these situations, the original Trustee (Grantor) can provide for a beneficiary without risking the trust principal being dissipated by excessive debt, drugs, a misguided relationship, or gambling. Choosing the successor Trustee is extremely important since he or she must follow the Grantor’s wishes. Since this can mean denying the beneficiary when they ask for additional funds, it can often become a burden.   

Contact a Dallas, TX Estate Planning Attorney

When planning your estate, it is essential to have an experienced Dallas, TX estate planning lawyer by your side to guide you through the process and help you make crucial decisions. When you choose Andrew Dunlap Attorneys, PLLC, you will benefit from an attorney with more than 45 years of litigation experience and a lawyer with proven integrity who was awarded the Air Force Commendation Medal twice. Call Andrew Dunlap Attorneys, PLLC at 972-807-6357, to set up an appointment to discuss your estate plan.