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What Is a Spendthrift Trust?

A trust is a means of transferring property—whether it is tangible or intangible— or funds from one party to another. It is a legal tool that allows transition of ownership through a third party, who manages the estate until such time that the original owner wishes to pass on the property to another in accordance with the terms stipulated by the former. One type of trust provides control over the spending of the trust by one of the beneficiaries of the aforementioned trust. This type of trust is referred to as a spendthrift trust.

A spendthrift trust is ensured in a clause placed within the legal documents of the trust. This allows benefactors or individuals creating a spendthrift trust to appoint an administrator to oversee the withdrawal of the funds from the trust. This type of trust exists in order to ensure that the beneficiaries of the spendthrift trust continue to receive long-term financial support from the benefactors through the trust. This is to avoid the common problem of beneficiaries gaining access to all their trust funds and losing it in a very short period of time.

Parents who wish to provide a trust for their children often make use of a spendthrift clause in their trusts. This is to ensure that their children are financially secure until they reach a certain age stipulated in the trust. This is usually done to ensure a child’s education or monthly living allowance. A spendthrift trust also provides a certain degree of protection from creditors.

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