Hi. Lee Phillips here.
I want to talk to you about what we call a spendthrift provision trust or spendthrift trust
there isn't a thing called spendthrift trust
what it really is it's a paragraph
that goes into a trust thing
and it can be inserted in your living revocable trust
or your land trust or irrevocable trust
it can basically be inserted everywhere
as long as that paragraph is in the trust
that means that the beneficiaries
their creditors
their ex-wife
their mother-in-law
nobody can get to their interest in the trust.
If the paragraph isn't in the trust
the spendthrift provision
if the spendthrift provision isn't in the trust
then
the creditor,
the IRS,
the ex spouse, whoever
can come and get the beneficial interest in the trust.
So it becomes a very critical provision in a trust
and it's just a paragraph long,
let me read some of it to you for a minute
"Except as otherwise provided in this trust agreement,
all payments of principle and income which are payable"--so everything--
"or will become payable
to the beneficiary of any trust created by this trust agreement
you can create sub trusts under the trust
shall be subject to
shall NOT be subject to
anticipation, assignment, pledge sale,
or transfer in any manner"
So the kid has his inheritance, he knows it's in the trust
and he wants to go out and buy a Camaro
and he says okay
look you sell me the Camaro
I'll give you my inheritance
I will assign my beneficial interest in this trust over to you
Uh-uh. Can't be done.
Just said
the beneficiary can't do that
it goes on
"nor shall any beneficiary have the power to anticipate or encumber
any such interest."
So they can't use it as collateral for a loan
you know there's a lot of money I'm gonna inherit $3,000,000 from dad
that ought to be pretty good collateral for a loan
dad's gonna die, I mean he's 99
give me the loan and you can use this as collateral
no no no no
that just said we can't do this
"nor shall such interest
while in the possession of the trustees
be liable for or subject to
the debts
contracts
obligations
liabilities or torts of any beneficiary."
So if the guy causes a big accident
and he gets sued
he has to declare bankruptcy
his interest in this trust
is not considered in that lawsuit judgment or the bankruptcy.
This is a critical clause guys.
"such interest shall also be free from any claim control or
interference of the spouse
of a married beneficiary
or the parent of a beneficiary."
So mom dies,
her trust
is set up and it goes to the children
the children are gonna go to dad
even though he's the ex and we didn't like him
they're gonna go to dad.
If this provision is in the trust
then the ex, dad
can't come back and get the money
now the trustee you can use the money for the children's benefit
but the ex, dad,
has no right to get that money.
Cool, huh?
the center provision is a critical provision
if that isn't in the trust
and your son
is the contractor and he goes bankrupt
well he's not going bankrupt today
but if he goes bankrupt 2008
then if the provision isn't in the trust
his creditors
his bankruptcy trustee
will set a current value on the trust
he's gonna inherit $3,000,000
but that's not for ten years
we can figure dad's life expectancy
on average
we can figure out what the value of $3,000 in ten years is today
that will be included in the bankruptcy
if this provision isn't in the trust.
The provision is critical I can't overstate that.
Now there isn't such a thing as a "spendthrift trust"
it's any trust
that has a provision like this in it.
So now you understand spendthrift trusts a little better.