Next Steps: How do I protect my slacker son’s inheritance?
Q: My husband and I have two sons who are exact opposites. One is 45, married to a teacher, has two children and never misses a day of work. The other is 38, can’t hold down a steady job, has been married three times (resulting in five children), is always behind on his child support and is usually broke. We have a wonderful relationship with our older son’s children, but never see our younger son’s because he is always behind on his support payments.
Assuming there is something left to leave when the second of us dies, we want our assets to be divided equally between our sons. But we’re concerned that our younger son will either blow what he inherits or a creditor will take his funds. Is there a way to protect our younger son from himself?
A: When your child or another potential beneficiary of your estate is a spendthrift, and you want to make sure that the funds you leave will be used as you intend, it is wise to include a “spendthrift” provision in your trust.
For hundreds of years, “spendthrift” trusts were used by the English to limit beneficiaries’ access to money so they could not squander it and their creditors could not touch it. These trusts were used by anxious fathers to keep inheritances, designed to benefit their married daughters, away from their sons-in-law and creditors (because, in those days, married women could not own property in their own names).
Today, every trust created by one person for the benefit of another should contain a spendthrift provision directing the trustee not to distribute any sums to a creditor of the beneficiary. In some trusts, the spendthrift provision has been expanded to direct that the trustee pay “necessaries” for the beneficiary by making payments directly to third-person providers for the beneficiary. Necessaries include such expenses as food, shelter, utilities, medical and dental care. This way, the funds never touch the beneficiary’s hands and generally can’t be grabbed by creditors before the monthly expenses are paid.
While a spendthrift clause may help beneficiaries who are unemployed, have creditor problems or, like your son, many former wives, state law may limit the applicability. For example, some states don’t allow these provisions, while others place limits on the amount that can be protected from creditors. A number of states permit those vendors who supply necessaries to make claims against the trust. Still others permit enforcement of valid court orders and judgments for alimony and child support.
No spendthrift provision protects the trust’s assets from claims by the Internal Revenue Service or state departments of revenue for past-due taxes, penalties and interest. And whether these provisions protect trust funds from plaintiffs in personal injury lawsuits is in flux.
Talk to a lawyer in your area who is knowledgeable about your state laws, and then take the steps that will provide as much protection as available.