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What Is A Spendthrift Trust?

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When making your estate plan, perhaps the most pressing question you have to answer is determining who you want to receive your assets. This is not always an easy choice, for a variety of reasons – not least of all that you may fear your chosen heir spending their inheritance in an irresponsible manner. Some states allow what are called Domestic Asset Protection (DAP) Trusts, which can help safeguard assets both from creditors and from the chosen heir themselves, but Florida does not permit these. It does, however, allow what is known as a spendthrift trust, which can, if designed properly, safeguard your assets successfully.

Protection Against Transfers

Essentially, spendthrift provisions prohibit the transfer of the beneficiary’s interest, either voluntarily or involuntarily. If the person you want to leave certain assets to has a reputation for sinking money into foolish or wasteful ventures, a spendthrift provision prevents them from signing over their inheritance to someone whose interests may not be ethical or appropriate. If you simply leave the money to your beneficiary, they have full autonomy over its disposal; if you place it in trust with a spendthrift provision, you have more control over the assets until you pass away.

The main difference between DAP trusts and spendthrift trusts – and the reason that Florida does not permit DAP trusts – is that DAP trusts are self-settled. This means that the person who creates the trust is also in line to receive the benefits from the trust, and this is not permitted under Florida law (it would essentially allow someone to bypass certain taxes if it was). Trusts that contain a spendthrift provision are intended to prevent the beneficiary from squandering their inheritance in a handful of different ways.

Advantages and Disadvantages

While a well-drafted spendthrift provision bars both voluntary and involuntary transfers, there are exceptions under Florida law for whom these provisions are unenforceable – in other words, a transfer of the beneficiary’s interest in your estate to certain people is still permitted. The most common example of this is if the beneficiary has a child or current or former spouse with an outstanding support order – domestic support obligations trump just about every possible estate planning document, because those obligations are seen as a cornerstone of Florida’s public policy of keeping families together.

In addition to the obvious benefits of a spendthrift trust, this type of trust can also ensure that fewer of your assets have to pass through Florida probate. Assets that have not been already disposed of must go through Florida probate, which means that they must be accounted for and itemized so that creditors can seek payment out of the residual of the estate – but this means that the eventual beneficiaries of a person’s will or trust may not receive as much as they were intended to receive.

Contact A Naples Estate Planning Attorney

If you have questions, concerns or just want to set up a complimentary consultation to discuss your personal legal issues in a confidential setting, contact James R. Nici, the Managing Partner of Nici Law Firm, a Naples estate planning attorney with almost 30 years of legal experience.  This may be the first step toward ensuring all is how you want it to be going forward. Contact our offices today via our website, or on the telephone at 239-449-6150, to schedule your complimentary consultation.

Resources:

flsenate.gov/Laws/Statutes/2012/0736.0503

flsenate.gov/Laws/Statutes/2012/0736.0502

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