Imagine if you were giving financial assistance to a child or other family member, only to discover they were using the funds for illegal drugs or excessive alcohol, instead of their real needs? That would certainly give some pause, in your continuing to aid them, as it would merely be supporting a negative lifestyle. What if you were to leave a large sum of money for someone, in hopes to aid in college, purchasing of a home, or starting a business and then to discover the fund were squandered? What a waste that would be of everything you worked so hard for and then left behind for them. Fortunately, there is an easy preventative measure for this. It is legally referred to as a Spendthrift Clause. This is a common inclusion in trust fund verbiage, to for example, prevent the trust fund assets from being squandered such as going towards excessive gambling and/or other debt repayment. If someone were to make some bad decisions and get heavily in debt, even through creditors could take other possessions or accounts they have, the funds in the trust could be untouchable, to them, thus giving your loved one a means of recovery.
There are many provisions which can be made in a Spendthrift Clause, such as having money be dispersed out in intervals (for example a monthly or yearly payment) as opposed to a lump sum, and these payments could even be contingent on behavior, such as attending school and avoiding a criminal record. This helps ensure that what you leave behind will be used to their benefit, instead of supporting a lifestyle of poor decisions.
In a more positive light, there can be beneficial aspects as well. For example, the asset principle of the trust might be held indefinitely, with only the investment gains of the asset being annually distributed. This takes the choice out of their hands, negating temptations that may come with too much money, too quickly. Getting a large amount of cash, without the discipline and maturity to handle it, could cause everything you leave behind to go up in smoke, on things that aren’t necessarily “bad”, but not “wise”, such as lavish vacations or a fancy sports car. Give a man a fish (a lump sum) and he eats for a day (or year), but teach him to fish (good financial stewardship) and he can always eat. Spendthrift clauses can be tremendously effective for your beneficiaries’ long term well being, giving time for wisdom and maturity to set in, so to use the funds more effectively.
