Has your Florida real estate lawyer told you about the spendthrift provision, yet?
You love your eldest child, and while you certainly want to ensure his or her rightful place in the inheritance line, what if you are not confident that he or she has the maturity to handle wielding the assets of the family’s considerable estate?
As any Florida real estate lawyer will tell you, planning how you want your real estate assets distributed after your death is one of the most important things you can do. Without an airtight estate plan, your entire estate, including real property, must go through probate, and the state will decide what happens to your home, land, and other possessions.
The Family Trust
Whether you have reached a certain age and are concerned with the future of your estate, or have become the patriarch of a considerable portfolio of family assets, like many individuals who act as the CFOs of their families’ commercial and residential properties, you have decided that moving the entire estate, including residences and rental holdings, into a trust will create the financial legacy you’re looking for.
The benefits of trusts are well-known. They can reduce your income tax liability and shelter your assets from estate taxes. They create a method for charitable giving and philanthropy. They hold, preserve, and manage unique assets such as art, mineral rights, and real estate. And, perhaps most importantly, they allow you to preserve the wealth you have built for future heirs and generations.
Additionally, a trust can reduce your tax burden and allow you to transfer ownership, sell, or purchase new property anonymously. Public records show the name of the trustee you’ve assigned rather than your name, and thereby protects against exposing your net worth to the general public and becoming targeted by evil-doers, plus provides some additional protection from liability.
A land trust also eliminates probate altogether because it transfers your real estate assets smoothly to your beneficiary upon your death, saving the heir months of aggravating and time-consuming paperwork and possible court costs.
But what if your beneficiary is underage or not good with money, yet? How do you protect your assets and keep a careless heir from wiping out all you’ve built? It’s not inappropriate to be concerned that your future heir might not be up to the challenge of wielding control of real estate assets that took generations to grow. Like other successful dynasties have shown, it’s all a matter of prudent planning. Here’s where the spendthrift provision comes in.
What Is a Spendthrift Clause?
In the simplest terms, a spendthrift provision in a trust limits the estate assets that can be reached by a beneficiary or their creditors. It prevents a beneficiary from using a future distribution of assets to secure credit. In other words, they can’t use the fact that they are getting money from your estate to establish credit. The clause also prohibits payments to a creditor that extends credit to a beneficiary based on future asset distributions.
A spendthrift clause allows you to set up a trust that pays your beneficiaries a set amount of money on an annual basis. Instead of receiving their entire inheritance in one lump sum, the funds are released to them in smaller increments that you specify, thus protecting them from their own bad spending habits as well as current and future creditors.
How Does This Help My Beneficiary?
Spendthrift clauses help your beneficiaries in several different ways depending on their circumstances. They prevent your beneficiaries from squandering their expected inheritance and forbids them from promising their trust funds to third parties, such as creditors or lien holders. It also may provide some protection from creditors and lawsuits.
For example, say your heir works in a high liability profession like medicine. If she gets sued for malpractice and loses, her inheritance will usually remain safe.
If your beneficiary has special needs that limit their ability to work or requires them to have continuous, specialized care, you can create a special needs trust with spendthrift language that provides this protection for your heir.
Exceptions to Spendthrift Provisions
As versatile as they are, there are some limits to what a spendthrift clause can do.
Once a disbursement has been made, that money is vulnerable to creditors. When you’re deciding how much to give your heir at scheduled intervals, keep in mind that once they receive their disbursement, they can do whatever they want with it, and that money becomes fair game for any creditors who might be lurking.
Spendthrift provisions do not apply to child support. And if your beneficiary owes money to the government for unpaid taxes, Uncle Sam may still be able to collect despite the spendthrift provision.
When Should I Include a Spendthrift Clause in my Florida Trust?
A spendthrift provision in a trust is advisable any time there is a minor child involved, or when there is a beneficiary who can’t be expected to handle larger money issues. Spendthrift clauses also come in handy when there is an heir with special needs that require continuous care or prevent the heir from earning a living. Your Florida real estate attorney can help you hash out the details. If you don’t have a Florida real estate lawyer readily available, be sure to look for one who has the additional training of being Florida bar board certified in real estate law to discuss your options and draft a spendthrift provision that best suits your needs and the needs of your beneficiaries.
Contact Florida Bar Board-Certified Attorneys David E. Klein, Esq. and Guy Rabideau at Rabideauklein.com. They have the expertise and experience you need to ensure that your interests are protected throughout your real estate transactions in the Town of Palm Beach, across the Palm Beaches and throughout Florida. Contact Rabideau Klein today to discuss the legal implications of your Florida property transactions.