Answered: An irrevocable trust, including…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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(Case Study Question) Henry's oldest son has few financial resources. Henry would like to contribute annually to a trust, with his son only receiving the trust income. The remainder of the trust would go to his grandchildren (his son's children) at his son's death. Henry wants his son to receive all the earnings from the trust with no restrictions. He realizes that his son will likely squander trust income he receives but wants to otherwise protect his son from his creditors. Which of the following trusts would you recommend that Henry establish for the benefit of his son? A) An irrevocable trust, including spendthrift provisions B) A support trust C) A Section 2503(b) trust

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Step 1: Answer

Correct option is A) An irrevocable trust, including spendthrift provisions

Explanation to the above answer

Henry's greatest alternative would be an irrevocable trust with spendthrift clauses. By doing this, he would still be able to enjoy the trust's earnings while shielding them from his son's creditors. Henry may be confident that his son won't waste the trust income by making the trust irrevocable. The spendthrift clauses will shield his son's creditors from the trust income while yet enabling him to receive distributions.

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