A spendthrift trust is created by an individual (the settlor) for the benefit of another individual (the beneficiary). It is commonly used to protect the assets for the benefit of an individual who may not be financially savvy or who may be at risk of incurring significant debts.
The North Carolina estate planning attorneys at Wilson Ratledge explain the main reasons why people consider setting up a spendthrift trust which are as follows:
- Protection of Assets from Creditors
One of the primary advantages of a spendthrift trust is that it provides protection for the trust’s assets from the beneficiary’s creditors. This means that the assets of the trust are not subject to seizure by the beneficiary’s creditors to satisfy outstanding debts. This can be an important consideration for individuals at risk of incurring significant debts, such as those with a history of financial irresponsibility or those at risk of legal liability.
- Professional Asset Management
Another advantage of a spendthrift trust is that it allows for professional asset management. The trustee, who is typically a financial institution or an individual with expertise in financial management, is responsible for managing the assets of the trust in a way that is consistent with the terms of the trust agreement. Even with smaller trusts for which an institutional trustee may not be cost effective, the trustee can engage the services of a financial advisor for this purpose. This can provide peace of mind for the settlor, knowing that the trust assets are being managed by a professional acting in the beneficiary’s best interests.
Spendthrift trusts can also be tailored to meet the specific needs and goals of the settlor and beneficiary. The terms of the trust agreement can specify how the assets of the trust are to be used, such as to provide for the basic needs of the beneficiary or to support a particular hobby or interest. This flexibility allows the settlor to customize the trust to meet their specific goals and objectives.
- Avoidance of Probate
In North Carolina, assets held in a trust are not subject to the probate process. This means that upon the settlor’s death, the assets of the trust will continue to held for the benefit of the beneficiary, and if appropriate at some later time, transferred to the beneficiary without the need for court involvement. This can be a significant advantage for individuals who wish to avoid the time and expense of probate.
Setting Up a Spendthrift Trust in North Carolina
Step 1: Choose a Trustee
The first step in setting up a spendthrift trust in North Carolina is to choose a trustee. The trustee can be an individual or a financial institution. The settlor should choose a trustee that they trust to manage the assets of the trust and make decisions in the best interests of the beneficiary.
Step 2: Determine the Purpose of the Trust
The settlor should also determine the purpose of the trust. This can include providing for the beneficiary’s basic needs, such as food, shelter, and medical care, or it can be more specific, such as providing for education or supporting a particular hobby or interest.
Step 3: Gather the Necessary Documentation
To set up a spendthrift trust in North Carolina, the settlor will need to work with an attorney to create the following documentation:
a. A written trust agreement: This document outlines the terms of the trust, including the purpose of the trust, the powers and duties of the trustee, and the rights of the beneficiary.
b. A list of the assets to be placed in the trust: This can include cash, stocks, real estate, or other assets.
c. A certificate of trust: This is a summary of the trust agreement that can be used to provide evidence of the existence of the trust to third parties.
Step 4: Fund the Trust
Once the trust agreement and other necessary documentation have been gathered, the settlor will need to transfer the assets to be placed in the trust to the trustee. This is known as “funding” the trust. The assets should be transferred to the trustee in a manner that is consistent with the terms of the trust agreement.
Step 5: Review and Update the Trust
After the trust has been set up and funded, it is essential to periodically review and update the trust to ensure that it continues to meet the needs of the settlor and the beneficiary. This may involve making changes to the trust agreement, adding or removing assets from the trust, or appointing a new trustee.
Wilson Ratledge, PLLC
Working with an estate planning lawyer in North Carolina is advisable if you need to set up a spendthrift trust in the Tarheel State. We can also help you review and update the trust as per your wishes to ensure that it remains effective and in compliance with all your future aspirations.