Being a spendthrift isn’t such a bad thing. In New York State, all trusts are usually considered as spendthrift trusts. Spendthrift trusts do not allow the beneficiary to assign income from the trust or to sell the interest in the trust to another party. This provides some protection from garnishments of creditors.
There are major exceptions to this general rule. Federal tax liens and child support or alimony payments are enforceable. Judgments of creditors against an individual may be enforceable up to ten percent of the value of the trust and claims may be made against any portion of the distribution above what is needed to support the individual. In all other situations, creditors may not attach or garnish the trust and must wait until the beneficiary takes control of an asset.
The incapacitated are likely to not possess appropriate money management skills. There are certain beneficiaries who cannot handle money due to their incompetence. We have all encountered friends or acquaintances who receive a substantial check on Friday who regularly have nothing left on Monday. They have little concept of money and need to be protected from themselves. Spendthrift rules greatly benefit such beneficiaries.
In New York State, you cannot establish a spendthrift trust with yourself as beneficiary to avoid creditors. You can always establish a trust for the benefit of others with the assistance of a qualified estate attorney. Your most important decisions are the name of the beneficiary and the trustee, along with the assets that will be placed into trust. As with any transfer of assets, documentation of the assets and in the case of non-cash assets, recent appraisals will get your plan on the path to fruition.
The Law Offices of Saul Kobrick, P.C. is a member of the American Academy of Estate Planning Attorneys.