If you have a loved one who is struggling with managing finances or who may encounter creditors in the future, a spendthrift trust can be a powerful tool in your estate planning. At Collins Law Firm, we serve families across the Milwaukee area from our offices in Wauwatosa and Pewaukee. We can help you understand how this type of trust operates under Wisconsin law and determine if it’s the best option for your goals.
The Basic Definition
A spendthrift trust is a legal agreement that limits a beneficiary’s ability to transfer their interest in the trust before receiving a distribution. This is regulated by Wisconsin Statute § 701.0502, which is part of the Wisconsin Trust Code. A spendthrift restricts both voluntary and involuntary transfers of a beneficiary’s interest, meaning creditors cannot access trust assets until they are distributed to the beneficiary. Additionally, the beneficiary is not allowed to give away or pledge their inheritance.
Why Wisconsin Families Use Them
Spendthrift trusts can be used in various situations. Wisconsin families often establish them to protect beneficiaries with a history of debt or poor financial choices, shield assets from future divorce proceedings, ensure inheritance for children with substance abuse issues, and preserve resources for minors or young adults who may not be ready to manage money responsibly.
The main goal is aligned with what drives many estate plans: ensuring that the resources you have worked hard to create actually reach and benefit the people you care about.
How the Protection Works Under Wisconsin Law
Wisconsin’s spendthrift protection is governed by Wis. Stat. § 701.0503. This section outlines the exceptions to the spendthrift protection, which generally shields trust assets from the reach of creditors. However, there are certain exceptions that allow certain claimants, such as a beneficiary’s child, spouse or former spouse with a court judgment for support or maintenance, and a judgment creditor providing services for the beneficiary, to reach the beneficiary’s interests in the trust, despite the spendthrift provision. This means that the protection is not absolute, but it is still strong.
The Role of the Trustee
A spendthrift trust typically grants the trustee, a trusted individual or corporate fiduciary, discretionary authority over when and how distributions are made. The responsibilities of the trustee are guided by the Wisconsin Trust Code’s fiduciary duty provisions, which require them to act in good faith and in the best interests of beneficiaries. Choosing the right trustee is crucial, as this person or organization acts as a gatekeeper between the trust assets and the beneficiaries.
Spendthrift Trusts And Special Needs Planning
For families with a member who receives government benefits, such as Medicaid or Supplemental Security Income (SSI), a spendthrift trust may be paired with a special needs trust. This arrangement helps to preserve eligibility for these public benefits while also providing additional support. The Wisconsin framework under Chapter 701 accommodates this type of layered planning.
Is a Spendthrift Trust Right For Your Family?
The right answer to this question depends entirely on the unique circumstances, values, and long-term goals of your family. A trust is not a one-size-fits-all solution – it must be tailored to your specific needs and carefully drafted to reflect your wishes while complying with Wisconsin law.
Collins Law Firm works closely with clients in the Wauwatosa, Pewaukee and greater Milwaukee areas to create estate plans tailored to the individual needs of each family they serve. Whether you have concerns about beneficiary financial habits, potential future creditors or simply wish to protect your legacy as intended, our team of experts are here to assist. We provide patient, professional and personalized advice to help you achieve your goals.
Contact us today to discuss if a spendthrift trust is right for your situation.