Over the years, there have been negative repercussions associated with spendthrift trusts. Typically, the most common issue is that beneficiaries resent the restrictions on their disbursements.
They come to view it as a type of dead-hand control. Read on to learn more about what that means and whether this type of trust is a needed addition for your comprehensive estate plan.
What does the term mean?
The concept of dead-hand control arose in medieval England during the age of feudalism. In those days, much as now, the rich and powerful sought to preserve their families’ power and land for future generations. To do that, they found it necessary to prevent their holdings from being divided, sold or shared by non-family members.
While they may have been well-intentioned, the complex legal instruments they devised to keep their holdings within family control led to the passage of the Rule Against Perpetuities. The United States eventually created a similar public policy designed to prohibit dead-hand control in perpetuity.
Are stipulations on inheritances legal now?
Today’s courts rely on a clause called the “restraint on alienation” that prevents present owners of a property from being restricted from exercising their full rights of ownership. Also prohibited are any clauses that are discriminatory, those encouraging divorce to inherit and anything that is illegal or considered abhorrent by society.
Which restrictions are still legal?
Spendthrift trusts act as bumpers that are designed to keep beneficiaries from wasteful spending because they deny them access to the trust principal. These trusts are quite useful for those beneficiaries with histories of alcoholism, drug abuse, gambling or simply failing to manage their own money.
But that’s not their only function. They are also great for beneficiaries married to controlling or abusive spouses, as trustees are appointed by the trust grantors to manage the funds and disburse them on preset schedules only to those named in the trust.
Just another tool in the estate-planning toolbox
Of course, not everyone will want or need to include a spendthrift trust with their estate plan. If you are interested in learning more about planning your estate, now is a great time to take action.