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Tuesday, October 23, 2018

What is an Inheritor’s Trust?

What is an Inheritor’s Trust?


There are many, many types of trusts used in estate planning, each with its own purpose. One specialized type of trust is what has come to be known as an inheritor’s trust. The purpose of an inheritor’s trust is to protect property which you expect to inherit from the risk of creditors, predators, and divorcing spouses, and possibly estate tax as well.


Purpose of an Inheritor’s Trust


Most states in the U.S. forbid 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 objective of protecting the trust assets from creditors. Even if you live in a state where self-settled trusts are allowed, the legal community is not unanimous in its opinion of their effectiveness. Therefore, once you receive an inheritance, it can be a challenge to protect the inherited assets yourself. Luckily, the inheritor’s trust provides an option.


Inheritor’s Trust Explained


If you are expecting an eventual inheritance from a loved one, and he or she is unwilling or unable to leave your inheritance in a trust, you can protect the assets with an inheritor’s trust. However, because in most states you cannot set up a self-settled trust, you will need to work with your loved one to establish the trust. Instead of receiving the inheritance outright or in a trust which has been drafted by someone else, you will inherit in a trust which YOU have designed and which will therefore include the terms for you and your family YOU want it to have. The trust will typically include a spendthrift clause to protect against creditors, a more drawn out distribution schedule, or provisions granting 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 actual designer as well as 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 controlled 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 ones’ financial future. Due to its brevity this blog cuts some corners and omits many nuances. 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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From our office in Gainesville, the estate planning firm of White & Crouch, P.A. advises and represents clients in communities throughout Alachua County, Marion County, Levy County, Putnam County, Clay County, Bradford County, Union County and Gilchrist County in North Central Florida. Call us at 352-372-1011 or contact the firm by email to arrange an initial consultation with us today.

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