SPENDTHRIFT

BENEFICIARIES

January 2010 

By:  James M. Bright

Attorney at Law

The following is provided for informational purposes only and is not, nor should it be construed as legal advice. 

What is meant by the term “Spendthrift”?  Black’s Law Dictionary defines the term in part as “One who spends money profusely and improvidently”.   

In terms of drafting your Last Will and Testament, it may refer to one of your beneficiaries (including adult children) who, in spite of all of your efforts, seems to have never grasped the idea that a budget and measured spending is a necessary part of most people’s lives.  Although this characteristic might be a product of irresponsibility in some people, it is not the only cause.  Some children may need protection from their own spending habits because they are generous to a fault and simply cannot resist the temptation to share beyond their abilities, while others may not fully realize that even modest wealth does not happen by accident. 

This writer makes no attempt to answer the question of “why” some beneficiaries are spendthrifts.  The important point for a discussion in preparation of a last will and testament is not “why,” but is “how” do we draft provisions which will help you to make certain that the property that you leave in your will isn’t wasted and spent in the first year after your death. 

One practical and simple approach to this problem is to draft a “Testamentary Springing Trust” into your last will and testament.  A “Testamentary Springing Trust” is so called because it is a gift made at death (i.e. testamentary) and does not “spring”  into existence until all conditions dictated by the deceased in his/her last will and testament have occurred.  This is not the same type of trust to which you may have been exposed in some of the so-called “Estate Planning Living Trust” seminars (with or without the obligatory accompanying dinner and sales pitch).  The “Testamentary Springing Trust” does not transfer property from you and into a trust prior to your death.  You will be left with complete ownership and control of your property during your lifetime. 

The terms of a “Testamentary Springing Trust” should be dictated by the need of the individual person or persons being protected.  A few examples from my own practice where a testamentary trust was used to meet a need and satisfy a desire to make sure that future needs of a spendthrift beneficiary were met are listed below.  They are submitted as examples only and do not begin to describe all of the ways that this approach may be used:

·        By far, the most common “spendthrift beneficiary” is the one who has not learned to live within his financial means and as a result is constantly in a financial bind.  When this occurs, the existence of a “Testamentary Springing Trust” can keep him from spending his entire inheritance in one fatal swoop when his first financial crisis arises and then have nothing left for the next financial crisis that is sure to come along.  The most common approach would be to instruct the person that you name as trustee to pay out a certain percentage of the trust each month over a long time period.  

·        An example from my practice is an adult daughter who had been married multiple times and who, because of her loving and trusting nature, made a sincere commitment to each new spouse in each new marriage without financial reservations.  Each time that she suffered a “loss in love” her financial position was also affected to her detriment.  The trust in her parents’ last will and testament provided for her protection by setting aside a small home so that she would always have a place to go and be able to call her own together with a quarterly payment sufficient to cover bare essentials of utilities and food.  We were also able to build in a cost of living index so that the buying power of future dollars expended would be equal to current dollars expended for the same products or services. 

·        Another example involves beneficiaries who have become habitual users of drugs or excessive alcohol.  These beneficiaries often may conduct their lives in an exemplary manner and then without apparent reason or provocation decide to spend everything they have in one weekend of mirth.  Providing for this type of “spendthrift beneficiary” in the manner described will at least keep them from adding future assets to the immediate loss.  In at least one example, the testator (as creator of the trust in his/her will) instructed the trustee to pay out a modest set sum each quarter together with an instruction to pay additional sums based upon benchmarks of performance by the beneficiary.  These benchmarks can be those that you dictate as evidence of the beneficiary being “clean and sober”.  You may give the person that you name as trustee as much or as littler discretion to make additional distributions as you would make if you were still living. 

·        Spendthrift provisions are placed in most wills prepared by this firm which  are intended to prevent the intended beneficiary from pledging the benefits of his trust before the intended time for distribution.  For example, if one of your beneficiaries is not to receive the proceeds from his particular trust until age 35, but at the age of 18 he decides that his life will not be complete without a new Corvette, this provision will protect the future interest.  Without this provision, someone might agree to sell him the Corvette today, and require no payment until the trust matured.  (It is probable that the interest rate charged, coupled with the time involved, could take a substantial bite out of the inheritance that you intended to be for his future well being). 

Whether one of the above circumstances exactly fits your needs or if it does not even remotely come close to recognizing the problem,  please be aware that you can be very creative in your trust wishes and at the same time keep a protective hand on the shoulder of the beneficiary who may not be as wise with his money as you would prefer.

The bottom line is that you can continue to have your wishes followed long after your death if you plan to do so.  A springing testamentary trust with consideration given to the spendthrift beneficiary will allow you to continue to protect the bests interests of your loved ones for many years.  It is highly recommended that you work with an attorney of your choice to accomplish these goals.

James Bright is admitted to practice before the Federal Courts for the Southern District of Texas and Eastern District of Texas as well as all of the Justice Courts, Probate Courts, County Courts at Law, District Courts, Courts of Appeal and Supreme Court for the State of Texas.  He maintains an office in Houston and by appointment another at

in the heart of historic Montgomery.  Contact may be made by telephone (936) 449-4455 or (281) 586-8277.  For more information about wills or probate in Texas, please see- www.houstontxprobate.com