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Using trusts to protect wealth from beneficiaries' creditors

Previous posts on this blog have discussed the benefits that Camden residents can experience from using trusts to protect and pass on their wealth. A trust creates a protected relationship between a trustee and a trust beneficiary that generally allows the property contained in the trust to pass to a beneficiary outside of the probate process. However, not all individuals who desire to set up trusts for their loved ones can be sure that their passed on wealth will be used for wise purposes.

In some situations a trust beneficiary may have exorbitant spending habits that leave the person facing creditors and bill collectors. Even the most robust trust may be depleted or exhausted when excessive spending forces a beneficiary to use trust resources to satisfy the person's debts. Individuals who create trusts for their loved ones can help guard against this situation from happening by creating spendthrift trusts or including spendthrift clauses in their trust documents.

A spendthrift trust is one that protects trust wealth from creditors and others to whom a beneficiary may owe money. It provides a beneficiary with income rather than access to the trust. As a result, the trust is protected from complete exhaustion by regulating the amount of wealth that the beneficiary may receive.

Not all readers may feel that such a trust or clause is necessary for their purposes; spendthrift trusts serve particular purposes for individuals who believe they are necessary. However, different trust formats and provisions can be included in testamentary planning to effectuate the needs of specific estate planning goals. To learn more about spendthrift trusts and other trust formats, interested individuals can work with estate planning professionals to discuss their unique needs.

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