Louisiana Spendthrift Trusts Explained:

A trust is a legal document between a person creating the trust (the grantor) and the person or entity managing the trust and its assets (the trustee).  A grantor may also be referred to as a settlor or trustor.  A trust also has beneficiaries, who under the terms of the trust, will receive certain assets from the trust.

A “spendthrift” trust allows the grantor to shield assets from creditors and ensure that beneficiaries do not receive all of the grantor’s transferable assets in one lump sum upon their death.  It’s a crucial estate planning tool that can help ensure that your beneficiaries are taken care of and that your assets are allocated in accordance with your wishes.

Residents of Louisiana who have saved hard and worked hard frequently worry about leaving sizable sums to beneficiaries who are extremely young, struggle with drugs or alcohol, or have previously handled money carelessly.  Spendthrift trusts can be used to shield beneficiaries from themselves and give the grantor discretion over how their assets are allocated after death.

An independent trustee oversees the assets put into a spendthrift trust.  The grantor of the trust gives the trustee the power to disburse money as they see fit or in response to specific predefined milestones.  Spendthrift trusts frequently incorporate provisions that restrict the distribution of funds until beneficiaries meet specific milestones, such as becoming a certain age, graduating from college, having a child, or staying sober for a predetermined amount of time.  These clauses are included by grantors of spendthrift trusts to safeguard and shield their beneficiaries from abuse.

How a Spendthrift Trust Works:

A spendthrift trust includes a spendthrift clause, also known as a spendthrift provision.  Spendthrift provisions are frequently used as part of other trust types such as testamentary trusts or living trusts.  Instead of transferring ownership to your beneficiary after your death, this clause makes the trust itself the exclusive owner of the assets held within it.  Per La. R.S. 9:2007, a declaration in a trust instrument that the interest of a beneficiary shall be held subject to a “spendthrift trust” is sufficient to restrain alienation by a beneficiary of the interest to the maximum extent permitted.

The assets will still be given to the beneficiary, but they will be released from the trust gradually over time, according to a schedule that the grantor and the trustee decide upon the trust is established.

Rather than having direct access to the assets, the beneficiary often gets payments from the trust either regularly or “as needed,” depending on the trustee’s judgment.  The trustee must follow fiduciary standards and is directed by the provisions of the trust.  There are limitations to the protection.  The beneficiary has complete control over the assets once they get a distribution. There are no restrictions on how the money can be used.

Other Benefits of a Spendthrift Trust:

Protection from Creditors and Former Spouses:

Another reason for spendthrift trusts is to shield assets from a beneficiary’s former spouse or creditors.  Sometimes the purpose of these estate planning techniques is to keep beneficiaries from getting big payouts during or shortly after a divorce.  For this reason, it is typical to establish a spendthrift trust in states like Louisiana that have stringent community property laws.

Protection from a Current Spouse:

Even if your beneficiary is financially responsible, they may be married to someone who is solely skilled at squandering money.  A spendthrift trust might be a blessing in preventing your heir’s assets from being drained by their careless spouse.

Protection from Litigation:

Since the assets in a spendthrift trust are owned by the trust, the trust assets will be protected in the event that a beneficiary is sued for negligence or some other reason.

Protection from Bankruptcy Liquidation:

Bankruptcies are becoming increasingly prevalent.  Although it is impossible to predict the financial situation of beneficiaries in the future, assets can be safeguarded from liquidation with a spendthrift trust.

Role of the Trustee:

Establishing the trustee’s level of control over the trust’s assets is a major consideration of the spendthrift trust.  A trustee cannot alter the terms of the trust after the grantor’s passing unless the trust expressly states otherwise.  For this reason, when establishing a spendthrift trust, the grantor must think about the long term.  The trustee’s authority and duties should be spelled out in detail in the trust’s provisions.  

Louisiana Spendthrift Trust Attorneys:

We are a Gretna law firm that has served the New Orleans area since 1980.  Our experienced spendthrift trust lawyers are well versed at creating all types of trusts including spendthrift trusts.  Our expert estate planning team can analyze your circumstances to determine whether a spendthrift trust is right for you and help guide you through the process.  We take pride in offering a personal and trusted experience.  Call us today for a free consultation and find out why so many of our clients come back to us.