A third-party spendthrift trust is a type of trust setup by Grantor to protect the assets held within it from being squandered by the beneficiary or seized by their creditors. The trust can be a stand-alone trust or the spendthrift provisions can be contained in one of Grantor's other trusts. In a spendthrift trust, the trustee has control over the distribution of funds, rather than the beneficiary directly. This arrangement helps safeguard the assets for the beneficiary's long-term financial well-being.
Key features of a third-party spendthrift trust include:
- Trustee Control: The trustee, who can be an individual or a corporate entity, manages the trust assets and has discretion over when and how distributions are made to the beneficiary.
- Creditor Protection: The assets held within the trust are typically protected from the beneficiary's creditors. This protection helps ensure that the assets are preserved for the beneficiary's benefit and cannot be seized to satisfy debts or legal claims against the beneficiary.
- Restrictions on Beneficiary Access: The trust document may include provisions that limit or restrict the beneficiary's access to the trust funds. For example, the trustee may be authorized to make distributions for the beneficiary's health, education, maintenance, and support, but not for frivolous or wasteful purposes.
- Control over Distributions: The trust document may specify certain circumstances under which distributions can be made to the beneficiary, such as reaching a certain age or achieving specific milestones. This allows the trustee to ensure that the beneficiary receives financial support when it is most appropriate.
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