Special 'spendthrift trust' can keep heirs from squandering homeowner's assets

A spendthrift trust can help folks to prevent their heirs from carelessly wasting the hard-earned assets they accumulated while they were alive.

Q. I am a 70-year-old widow with only one heir, a 31-year-old son. I love my son very much, but he spends money like it's going out of style and often winds up borrowing cash from me. Is there a way that I can ensure that he won't sell my longtime home after I pass away and then squander all of the profit?

A. Sure. Your best bet would likely be to set up a special trust, known as a "spendthrift trust," that would basically put limits on what he can do with your property and how much he could spend after you pass away.

Unlike the basic living trusts that I have written about before, it's usually best to have a spendthrift trust prepared by an attorney. You would name a trustee (not your free-spending son) to handle your home and other assets after you die. The trustee would then make payments to your son, known as the "beneficiary," based on the wishes you spell out in the trust document.

To illustrate, let's say that you want the trustee to sell your home and other assets after you die and then put the proceeds into a bank account that the trustee would control. Your spendthrift trust could require the trustee to give your son a preset amount of cash at specified intervals, such as once a month or once a year.

By doling out just a portion of the money on a regular basis, your son won't be able to blow all of his inheritance at once. You could even tailor the trust so that all of the trust's remaining assets would be paid to him in a lump sum on a certain date several years from now, when he (hopefully) has learned to curb his spending and to exercise better financial judgment.

It's important to carefully consider the trustee you choose to handle the trust after you're gone. Oftentimes, people who create such a trust choose a relative or close friend. That's OK in some instances, but it can create problems in others if the heir wants more money sooner than you want him or her to get it.

Countless families have been emotionally torn apart after, say, an heir wants more money sooner but the uncle or an older sibling is the trustee and refuses the request based on the wishes you clearly described in the trust document. That is why many folks who form a spendthrift trust instead select a non-related attorney or bank officer to serve as trustee: Their job is to distribute the assets according to your final wishes, and don't really care if an heir likes the decision or doesn't.

Real estate trivia: American homeowners expected to leave an average of about $175,000 to be split among their heirs, according to a survey released by lender HSBC at the end of 2013. It's now probably closer to $200,000, many economists say, because most home values and stock prices have steadily increased since then.

Q. We made a full-price offer for a home, but the seller rejected it and asked for $3,500 more. We refused to pay the extra money. Can we sue him because we offered to pay the price that he originally advertised but then asked for more?

A. You could sue, but you probably wouldn't win. Sellers are never obligated to follow through with a transaction, even if a buyer offers the property's full asking price, unless there's a written sales contract that is signed by both parties.

You don't have a signed contract, so going to court would likely be a waste of your time and money.

Q. We are starting the process of refinancing our home. Can a lender order a copy of our credit report with only our verbal authorization, or does the approval need to be in writing?

A. The lender can order the report with your verbal consent, but many financial institutions have a policy that requires your written approval first.

The Federal Fair Credit Reporting Act puts relatively strict limits on the types of companies that can access your complete credit report without your prior approval. Those companies include lenders when you apply for a mortgage or other kind of credit, collection agencies that are trying to recover a debt and insurance companies after you ask them to underwrite a policy.

A growing number of employers also want to see a job applicant's credit report, but can get it only if the jobseeker first agrees to the request in writing.

Our booklet "Straight Talk about Living Trusts" provides the information readers need to determine whether forming an inexpensive trust would be a good idea based on their individual circumstances. Net proceeds are donated to the American Red Cross.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2016, Cowles Syndicate Inc.