Planning for the distribution of your assets and wealth is an important part of estate planning. For individuals in New Jersey, including a spendthrift clause can be a smart decision.
A spendthrift clause is a legal provision that you can add to a trust. The main purpose of it is to protect the inheritances of your beneficiaries from potential financial mismanagement or outside creditors.
Adding a spendthrift clause to your trust helps safeguard your beneficiaries if you have concerns about their financial responsibility or vulnerability to creditors. Without such a clause, beneficiaries may gain unrestricted access to their inheritance. This can be problematic if they are not financially savvy or are having creditors pursue them.
Preventing squandering of assets
A spendthrift clause can prevent beneficiaries from squandering their inheritance recklessly. It allows you to impose restrictions on the timing and amount of distributions. This, in turn, helps ensure that the assets undergo prudent management.
Guarding against creditors
In New Jersey, as in many other states, a spendthrift clause can shield the inheritance from the beneficiary’s creditors. If a beneficiary faces financial difficulties, such as bankruptcy or legal judgments, the clause protects his or her assets.
Encouraging financial responsibility
Including a spendthrift clause can also promote financial responsibility among your beneficiaries. By receiving an inheritance in a structured, controlled manner, beneficiaries may be more likely to make responsible financial decisions. Otherwise, they might start relying on a lump-sum distribution that they may not be able to manage effectively.
According to NerdWallet, 83% of Americans admit to overspending. A spendthrift clause helps you avoid having beneficiaries blow through inheritances and is a practical and effective means of preserving your legacy and providing for your family’s financial security.