Spendthrift Trust

Family Finances - Spendthrift Trust

For as long as he could remember, Jake's son Billy had been a straight A student.

Whether it was solving a calculus problem or writing an essay on the meaning of Shakespeare's Hamlet, Billy accomplished these tasks with ease.

It was no wonder than when Billy received a Ph.D. at the ripe old age of 22.

While Jake could hardly contain his pride on Convocation day, one thing troubled him about his scholastic superstar. Josh had always excelled when it came to academics, but when it came to the practical side of money, such as balancing a cheque book, he was a hopeless case.

Jake always knew where every dollar was spent and how his investments were doing on any particular day. He had hoped that at least some of his money skills would have rubbed off on his son. But much to his chagrin, Billy seemed more interested in the chemical composition of a loonie, rather than how to make that loonie grow into a twoonie.

A few months after Billy had received his Ph.D., Jake ventured out on a trip he had always dreamed of; a solo canoe trip on the one of Northern Canada's great rivers, the Nahanni. Unfortunately, on the third day of his trip, he missed the start of a crucial portage and found himself heading over Virginia Falls which just happened to be twice as high as the falls at Niagra. His last thoughts before he disappeared under the thundering water were not of his own life but of how his son would cope with his inheritance.

Billy was deeply shaken by the death of his father and the sudden realization he was alone. He had no other siblings and his mother had died when he was very young. A close friend of his father tried to comfort him by saying that the inheritance he would receive from his father's estate could never replace his dad but would ensure he lived in comfort for as long as he lived.

Billy was not sure what to make of this individual's comments until he received word from the lawyer who was handling his father's estate. He was the sole beneficiary of all his father's worldly possessions which totaled slightly more than three quarter's of a million dollars!!!

Sadly, less than 12 months later, the small fortune that was to allow Billy to live comfortably for the rest of his life had dwindled to nothing.

Jake had no intention of passing on to the next world so soon and most likely thought that on his return from the Nahanni, he would sit down with Billy and try to improve his money management skills. But things don't always go as planned and I am sure if Jake had been given a second chance, as in the television series "Twice in a Lifetime", he would jumped at the chance to have done things differently.

Had Jake been given that chance, one of the first things he might have done was to review his estate plan and more specifically his Will.

Jake's intention had always been that if he were to pass away, Billy would inherit his entire estate, which was reflected in his will. But there was one glaring omission as was evidenced by how fast a lifetime of scrimping and saving disappeared when it was turned over to his son.

As was revealed in the story, Billy was genius when it came to school. However he failed miserably when it came to managing money. Knowing this, it would have been in Jake's best interest to include a clause in his will to set up a testamentary trust known a spendthrift trust.

A spendthrift trust should be contemplated when one is leaving part of one's estate to a beneficiary who may have the money management skills of Billy or a history of financial irresponsibility. As stated in the "Canadian Guide to Will and Estate Planning" by Douglas Gray and John Budd, "One solution is to set up a trust to control the funds or assets that the child would otherwise receive. The trustees would have the power to distribute as much of the income as appears reasonable for the child, with any excess income being reinvested in the trust."

Had Jake been given a second chance to rewrite his will to include provisions for a spendthrift trust, the legacy he had spent a lifetime building could have provided his son with a life time free of money worries.

If you think one of your heirs may lack the necessary financial skills to handle a large amount of money in the form of an inheritance, consideration should be given to discussing with a lawyer the benefits of spendthrift trust.

Saskatchewan Representative

Rick Soparlo CFP R.F.P.