Using spendthrift provisions as you create your Anaheim estate plan can be an excellent tool for protecting trust assets from the creditors of your beneficiaries. In order to be effective, however, these provisions must be properly structured. In addition, certain criteria must be met with regard to the nature of the debt, the individual or entity who is serving as the creditor, and how much power the beneficiary has over trust assets.
Situations Where a Spendthrift Provision Is Ineffective
- If the creditor is seeking repayment for services provided to the beneficiary for basic necessities, such as food or shelter
- If the creditor is a child or co-parent who is entitled to child support payments
- If the creditor is an ex-spouse who is entitled to spousal support payments
- If the beneficiary refuses a distribution that was called for under the terms of the trust
- If the beneficiary is also the person who created the trust
The more effective way to structure a spendthrift provision within a trust is to give the trustee, not the beneficiary, the ability to stop payments to the beneficiary on a temporary or a permanent basis. If the beneficiary retains this control, the creditor protection is lost. California law allows the trustee to allow income on the trust assets to accumulate or to distribute it to a different beneficiary.
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