Estate planning is largely centered on deciding what assets to bequeath to beneficiaries. For some, concerns might not center on what or how much to leave someone but on what the person will do with the funds. California residents might consider devising a spendthrift trust to address issues with heirs who might not know how to manage their money.
A trust is significantly different from a last will and testament, as a will establishes the transfer of assets per the testator’s wishes. However, with the trust, the grantor could designate more rules and requirements. A trustee would then assist with the trust’s management to ensure the execution of the trust adheres to the grantor’s wishes.
With a spendthrift trust, the grantor may decide that transferring all assets, such as stocks, bonds, cash, and precious metals, should be done judiciously instead of transferring everything all at once. The grantor could decide to release 10% of the funds per year, and the rules may demand that the funds cover debts if the beneficiary amasses any.
Additional concerns from the grantor
A grantor may worry about a beneficiary not because the beneficiary is irresponsible but because the person could be too young or inexperienced in managing money well. Spendthrift trusts allow the grantor to devise rules that might protect and preserve the inheritance, which could have long-term benefits. Such estate planning steps might also protect the beneficiary from scams and other risks when they come into substantial money.
A trust may be complicated, so effective planning could be necessary to craft a workable one. Following all state rules and requirements for devising a trust might result in a well-crafted instrument that serves its intended purpose.