By Tony Snyder | May 4, 2012
The title to this article is both humorous, and yet more appropriate to your life than you might realize. When I was a kid, my mother used to always say to me, “The way you like to spend money, you’d better grow up to be a brain surgeon or lawyer”! Knowing what I know now, I should have become a brain surgeon…but I digress.
My mother’s point was I really liked to spend money and even having my allowance darned near burned a hole in my pocket! Granted, we all go through a phase where we want everything and the thought of saving our money for a “rainy day” seems ridiculous. And, hopefully, we out grow it and start to learn the value of money (and saving it).
But what if we don’t? Or what if that “phase” goes on longer than it should? We don’t know when our children will start to learn the value of money and what if we’re not around to help guide and teach them? Not to worry, that’s why I’m a phenomenal estate planning attorney! I put a Spendthrift provision in all of my estate planning documents.
What is a Spendthrift provision, you ask? It’s nothing more than a section in your Will/Trust which states the following:
“No beneficiary entitled to any form of future distribution from a trust created hereunder, shall take or have any title in the Trust until the same shall be actually received. Further, no disposition, charge or encumbrance by way of anticipation by any beneficiary shall be of any validity or legal effect, nor shall the future interest of such person be in any way liable for any claim of a creditor, spouse, divorced spouse, or any other claimant to whom a beneficiary may be in any way liable, nor shall it be subject to any legal process or bankruptcy proceeding.“
Whew, that’s a lot, isn’t it?! Let me explain in laymen terms: You don’t get the money until you’ve earned it! Ok, maybe that’s a bit simplistic, but it’s fairly accurate. It’s the idea that whatever money the beneficiary is entitled to from the Will/Trust can’t be borrowed against, it can’t be mortgaged, nor can it lost in a bankruptcy or event of a divorce. Now, the key here is that you have not yet received the distribution. Once you get the distribution, you can lose the money in bankruptcy or to a divorcing spouse. That’s why my estate planning documents also allows the Successor Trustee to withhold disbursement to a beneficiary if the Successor Trustee believes that the money will be wasted (usually on drugs/alcohol) or lost to the aforementioned reasons of the provision.
So make sure when you establish your estate planning documentation, you ensure your loved ones don’t burn through it even before they get their grubby little hands on your hard earned money!