Insights from an LA County Estate Planning Lawyer
When parents plan their estate, they often think about who gets their assets, but they don’t always consider what might take those assets away later. Even if your children are financially responsible, their inheritance can be vulnerable to “outside” forces– most commonly, a contentious divorce or a surprise lawsuit.
In LA County, a simple inheritance given directly to a child can quickly become “fair game” in a legal dispute. This is where the power of a Spendthrift Clause becomes your family’s strongest defense.
The Vulnerability of a “Direct” Inheritance
Most standard Wills distribute assets “outright” to heirs. Once that money hits your child’s bank account, it is legally theirs, and that means it is also visible to their creditors.
More importantly, it is at risk of commingling. If your child uses part of their inheritance to pay off a joint mortgage or deposits it into a joint savings account with their spouse, that once-“separate” inheritance can be transformed into marital property. If they later face a divorce, their ex-spouse could be entitled to half of what you intended to stay in your family.
How the Spendthrift Clause Creates a “Shield”
A spendthrift trust is not a separate type of trust; rather, it is a specific set of rules (a “clause”) added to a trust document. It changes the legal relationship between your heir and their inheritance in three critical ways:
- Prohibits Assignment: The beneficiary cannot “pledge” their inheritance as collateral for a loan or sell their interest in the trust to someone else.
- Blocks Creditors: Because the assets are technically owned by the trust—not the child—creditors cannot “attach” or seize the funds to satisfy the child’s debts.
- Divorce Protection: Assets held in a properly structured spendthrift trust are generally excluded from the “marital pot” during a divorce. Since the child does not have the power to compel a distribution, a court usually cannot treat those funds as an available asset to be split with an ex-spouse.
Discretionary Power: The Key to Maximum Security
For the highest level of protection, many LA County families choose a Discretionary Spendthrift Trust. Instead of requiring the trustee to pay out a specific amount every month, the trustee has the “sole discretion” to decide when and how to help the beneficiary.
If your child is currently facing a lawsuit or a divorce, the trustee can simply “pause” distributions until the legal storm passes, ensuring your hard-earned legacy doesn’t end up in a creditor’s pocket.
Protecting the Next Generation
A spendthrift clause allows you to provide for your children’s genuine needs—such as healthcare, education, or a down payment on a home—while safeguarding those assets from the “what ifs” of life. It ensures that your legacy serves your family’s best interests over the long term, regardless of the challenges your heirs may face.
Is your current estate plan prepared for the “outside” risks your heirs might face? Contact our office at 310-782-6322 to discuss how a spendthrift trust can secure your family’s financial future in LA County.