When it comes to estate planning there are several types of tools you can use, depending on
your circumstances. One such estate planning tool is the trust. There are numerous types of
trusts aimed at fulfilling different estate planning purposes. If you are anticipating an inheritance,
there is a special type of trust designed to help protect it: an inheritor’s trust.
Purpose of an Inheritor’s Trust
An inheritor’s trust is a trust that has been established for the purpose of receiving a
beneficiary’s inheritance in a way that is protected legally and financially. In order to fulfill its
intended purpose, an inheritor’s trust must be set up in a way that follows numerous tax and
legal rules. Virtually every state in the country forbids what is referred to as a “self settled trust.”
A self settled trust is an irrevocable trust established by an individual, for his or her own benefit,
with the intent to protect the trust assets from creditors. Therefore, once you receive an
inheritance, it is very challenging to protect the inheritance assets yourself. Luckily, the
inheritor’s trust provides an option for people expecting an inheritance. Inheritor’s Trust Explained
If you are expecting an inheritance from a loved one, and he or she is unwilling or unable to
leave your inheritance in a trust, you can protect these new assets with an inheritor’s trust.
However, because you cannot set up the trust yourself because of the “self settled trust” rule
discussed earlier, you will need to work with your loved one to establish the trust. Instead of
receiving the inheritance outright, the trust will be the recipient of the inheritance. The trust will
typically include a spendthrift clause to protect against creditors, a more drawn out distribution
schedule, or provisionsgranting only discretionary distributions to you. Once the trust has been
drafted, your loved one will need to sign the instrument as the creator (grantor) but you will be
the beneficiary.
There are several benefits to an inheritor’s trust:
● The inheritance can be excluded from your taxable estate potentially saving your family
estate taxes;
● The trust can be a more cost effective way to protect the assets instead of your loved
one revising their existing plans;
● Upon your death, the inheritance will be distributed outside of your probate estate which
can help ensure privacy and lower attorneys fees and administration costs;
● The inheritance will be protected from creditors, lawsuits, and divorcing spouses;
● In some circumstances, the inheritance can even be c
ontrolled and managed by you, as
a trustee; and
● You can decide how remaining trust assets will be distributed after you pass away if the
trust gives you that power.
An inheritor’s trust is a sophisticated, but powerful estate planning tool. It is ideal for anyone
who is to receive a substantial, outright inheritance that may need additional asset and tax
protection. Consult with an Estate Planning Professional Estate planning can be complicated,
but it is essential in protecting yourself and your loved one’s financial future. If you expect to
receive an outright inheritance and desire to maintain control, gain superb asset protection,
and use all possible avenues to avoid estate and transfer taxes, an inheritor’s trust may be right
for you. Give us a call today to learn about whether this estate planning tool is an option for you.
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