Reasons to Consider a Spendthrift Provision in a Trust

Many New Jersey estate plans contain one or more trusts. Trusts are important legal arrangements through which assets can be placed by one party (the “grantor” or the “trustor”) for the benefit of another party (the “beneficiary”). The trust is then managed by a party with the title of “trustee.” A trustee may in some cases be the grantor, or it may be a third party, depending on the type and nature of the trust. Trusts serve different purposes in New Jersey, including the ability for beneficiaries to avoid probate for the assets held in the trust, the ability to provide for a disabled adult child or other close relative without impacting their eligibility for public benefits, the ability to mitigate estate taxes, and the ability to protect assets.

One type of provision that can be added to a trust under New Jersey law is known as a “spendthrift provision.” What is this and why should you consider one? Our Summit estate planning attorneys can tell you more.

What is a Spendthrift Provision? 

A spendthrift provision is a type of provision that can be included in a trust that limits a beneficiary’s access to the assets in the trust. The provision has the name because of the idea that there are spendthrift beneficiaries who should not have access to all of the money designated for them in a trust at any given time. For example, if a trust contains $1 million for a particular beneficiary, a spendthrift provision can control or limit the beneficiary’s access to that money. It also limits a creditor’s access to such assets since they are not owned or accessible by the beneficiary.

In order for a spendthrift provision to be valid, it must meet certain requirements set forth under New Jersey law. Most importantly, it must “restrain both voluntary and involuntary transfer of a beneficiary’s interest.”

Top Reasons to Consider a Spendthrift Provision 

Why should you consider a spendthrift provision? They have a couple of major benefits if you have an intended beneficiary who is likely to have issues with debt and with creditors, or is likely to engage in erratic spending:

• Spendthrift provisions can curtail a beneficiary’s spending of the assets since access to the assets will be controlled or limited by the provision; and
• Spendthrift provisions prevent assets from being taken by any of the beneficiary’s creditors since the trust will own the assets and the beneficiary’s future interest in those assets are not reachable by creditors.

Contact a Summit Estate Planning Lawyer 

Whether you have specific questions about spendthrift provisions in New Jersey trusts or you want to find out about establishing a trust as part of your estate plan, you should seek legal advice as soon as you can. One of the experienced New Jersey estate planning lawyers at Dempsey, Dempsey & Sheehan can speak to you today to learn more about the questions you have and the estate planning needs you have, and we can begin working with you to build an estate plan that is suited to your particular needs. Contact us today for more information.

Source:

law.justia.com/codes/new-jersey/title-3b/section-3b-31-36/