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Will a Spendthrift Provision Help My Beneficiaries?

Will a Spendthrift Provision Help My Beneficiaries?

People usually have the best intentions when deciding who will get their property after they’re gone. Good estate planning can give a sense of contentment, satisfaction, and peace of mind. But taking a long, hard look at your heirs may cause some people to cringe a little. Can their loved ones really handle getting large sums of money or valuable property? Are they fiscally responsible or will a big inheritance be gone with the wind in no time? When working out your estate plan, consider whether a spendthrift provision will help your beneficiaries.

Spendthrift clauses in a nutshell.

First of all, what in the world is a ‘spendthrift clause?’ Well, it’s a provision in a Will or trust that protects against the “imprudence, extravagance, and inability to manage financial affairs” of a beneficiary. Under this clause, your heir cannot transfer interest in the trust and creditors cannot “attach, garnish, execute on or otherwise reach the interest or distribution by the trustee.”

Benefits to Beneficiaries.

Basically, the spendthrift clause, when included in a Will or trust, prevents heirs from squandering an inheritance. Heirs are restricted from promising “future payments of income or capital” to another person or entity. This clause also provides the beneficiaries some protection from creditors.

In addition, spendthrift provision may be useful in special needs planning. If an heir is considered disabled or has a potentially disabling condition, money can be set aside for future treatment and care without disqualifying them from benefit programs.

And if one or more of your heirs works in a high liability profession, spendthrift trusts can protect against civil judgments. So, if your daughter, a doctor, gets sued for medical malpractice and loses the lawsuit, her inheritance can be kept safe.

Exceptions to Spendthrift Provision.

Distributions received by the beneficiary become fair game for creditors. When deciding how much will be given to your heir, remember that the protection of the spendthrift provision ends with each disbursement paid out.

Also, Arizona law provides a couple of exceptions to spendthrift provisions:

  1. Judgments for a beneficiary’s child support or maintenance can be paid from a trust regardless of a spendthrift provision, unless that trust is a special needs trust; and
  2. Claims by Arizona or the United States are excepted.

Your beneficiaries might need protection from themselves and from others. Thoughtful use of a spendthrift provision may help heirs keep more of their inheritance for themselves.

Make Sure Your Beneficiaries Are Covered.

At Keystone Law, we use our estate planning experience to help clients like you decide how to develop a personal estate plan. Call us at (480) 418-8448 or visit our website at keystonelawfirm.com to check out some of our free seminars. Serving the greater Chandler area, including Ahwatukee, Gilbert, Sun Lakes, Mesa, and Tempe.


Posted on: December 29th, 2017 by Sheryl Keeme   Estate Planning  |  Trusts
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