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What Is a Spendthrift trust? Definition, Uses and Importance.

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A trust designed to keep money out of the hands of creditors, often established to protect someone who is incapable of managing his or her financial affairs.

A separate legal body, a spendthrift trust. The trust distributes cash to your beneficiary over time, rather than leaving them a lump sum at the end of your will. Let’s imagine your estate is worth $2 million, for example. Instead of distributing the entire estate at once, a spendthrift provision could set up periodic distributions of any dividends earned.

It’s also possible to create a spendthrift trust during your lifetime if that’s something you’re interested in. This is known as an inter vivos trust, and you can appoint yourself as the trustee of it. If you decide to go this route, be sure to appoint a replacement trustee to take over after your death.

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