Different tools, such as wills, powers of attorney, and trusts, are commonly used for estate planning. However, there is one more estate planning tool, known as an inheritance trust, that you may be less familiar with.
An inheritance trust has practical benefits that make estate planning more palatable in certain ways. It specifically emphasizes the protection of your assets and ensures that they go to your intended recipients.
Does it sound like something you may consider integrating into your estate planning? If so, feel free to stick around. Let’s talk at length about inheritance trusts so you can decide if they make sense for your specific situation.
What Is an Inheritance Trust?
Before we define an inheritance trust, let’s take a moment to review the more basic trusts.
A trust is a legal entity that someone creates to protect assets and eventually facilitate their transfer. The grantor is the party who establishes the trust and places assets in it, while the beneficiary is the party that will receive the assets in the trust. The grantor will also name a trustee whose job is to oversee the trust and the assets it contains.
If you are planning to use a trust to transfer your assets to your spouse or your children, then they can claim ownership of those assets after meeting certain conditions. For example, a trust usually transfers assets when the grantor passes away or becomes incapacitated. Trusts can also hold assets until the grantor’s children become adults.
We also have revocable trusts that can be easily changed and irrevocable trusts that are harder to amend.
That is a basic overview of what a trust is. So, how does an inheritance trust differ from it?
An inheritance trust differs from a more conventionally structured trust due mainly to what it transfers. When you use an inheritance trust to manage the transfer of your assets, you are passing down the trust itself. All the benefits of having a trust will still be accessible to your beneficiary because you transferred the trust itself and not only its contents.
Could an Inheritance Trust Be Troublesome for Your Beneficiaries?
You may be wondering if an inheritance trust could be a burden for your beneficiary. Yes, they can still learn about it when the time comes, but it may be easier for everyone to go with a conventional trust.
One of the great things about inheritance trusts is how simple they are to manage for beneficiaries. Most inheritance trusts help a beneficiary transition to the role of trustee without much trouble. They do not need to jump through many hoops to assume control. Waiting may only be necessary if they are under eighteen when given ownership of the inheritance trust.
You can also handle the complicated tasks related to getting the inheritance trust set up. That way, your beneficiary will have an easier time controlling it.
Do not let the misguided notion that inheritance trusts are complicated push you away from using them. The truth is that they are easy to set up and manage for you and your beneficiaries. Moreover, you can make that process even easier if you decide to work with an estate planning attorney.
What Are the Benefits of an Inheritance Trust?
When presented with the choice of creating an inheritance trust or its more conventional counterpart, you may opt for the latter simply because you are more familiar with it. However, before deciding one way or another, you should first check out the benefits of an inheritance trust. Those benefits are detailed below.
An Inheritance Trust Protects Your Assets from Your Beneficiary’s Spouse
According to statistics provided by Caring.com, only 26% of adults over fifty-five have talked to their children about estate planning. There are several potential explanations for that low number. One of them could simply be the parent having reservations about their child’s spouse.
As a parent, you want to believe in your child’s ability to make good decisions. You want to believe that the person they will choose to marry is an upstanding individual who also has your child’s best interests in mind. Of course, we all know that is not always the case.
Your child is still susceptible to making bad decisions like everyone else. They may fail to see the flaws in their spouse that you do.
Mentioning your reservations about your child’s spouse to your child is not easy. It could strain your relationship further if you and their spouse have had issues before.
This is where an inheritance trust could prove to be helpful.
When you create the inheritance trust, you can arrange it so that only your child will own its assets. Even if their marriage ends in a divorce, their ex-spouse will have no legal recourse to claim assets from the trust. Furthermore, your child has an excuse to avoid sharing the assets in the inheritance trust with their spouse because you entrusted those assets specifically to them.
You can avoid placing excessive strain on your relationship with your child while still looking out for them by setting up an inheritance trust.
An Inheritance Trust Protects Your Assets from Your Beneficiary’s Creditors
Aside from marrying a spouse who is only after their money, there are mistakes your child could make that could devastate their finances. For instance, they may take the plunge on an ill-conceived business venture or entrust their money to a dishonest financial planner. They could also get into an accident that renders them incapable of continuing their career.
You do not want to think about any of those possibilities, but it is best to be prepared for them anyway. Once again, an inheritance trust can help your beneficiary navigate those potential predicaments better.
Because the assets are in the trust, your child’s creditors cannot claim them. Your child can also take out some of the assets in the trust to bolster their finances during a particularly difficult time.
The inheritance trust can act like a safety net for your beneficiary. No matter how bad things get for them financially, they can use the assets in that trust to bounce back.
An Inheritance Trust Can Transfer Assets to Your Grandchildren
An inheritance trust can do more than protect your children. If you set it up properly, you can also use it to facilitate the transfer of your assets to your grandchildren under certain conditions.
Your child may have a condition that makes it more likely that they will pass away at an early age. Knowing that, you can use the inheritance trust to secure your grandchildren financially. Name them as the beneficiaries of the inheritance trust in the event your child passes away so they can take ownership of whichever assets remain.
Even if your child has no life-threatening condition, it is still smart to set things up that way to safeguard the best interests of your grandchildren.
This feature of the inheritance trust is useful not only for passing assets to your grandkids. For example, if your child cannot use all of the assets in the trust, you can still pass them on to your other family members.
Protecting your family’s future is easier if you use an inheritance trust.
An Inheritance Trust Protects Your Assets from the Probate Process
Probate is the process that wills must undergo to be deemed legally acceptable. In New York State, the validity of a will is tested in the Surrogate’s Court.
You can understand why subjecting a will to probate is necessary, but it is also a process that can be difficult for your heirs.
For starters, probate is a lengthy process. It routinely extends well past one year. If you were the breadwinner for your family, the last thing you want is to leave them waiting that long for the assets you left behind.
Probate also makes your assets public. You may not mind making your estate public, but your children may have a different take on strangers knowing about their assets.
Do not forget that there are also expenses associated with the probate process. Due to probate, your children may not receive as much as you intended them to.
Similar to conventional trusts, inheritance trusts will also allow your beneficiaries to bypass probate. That benefit alone makes setting up a trust worth the effort.
An Inheritance Trust Can Be Fully Controlled by Your Beneficiaries
Lastly, you should consider setting up an inheritance trust because it protects your assets while giving your beneficiaries complete control.
When ownership of the inheritance trust goes to your beneficiary, they also assume the role of trustee. In that capacity, they can use the assets in any way they see fit. Your child will appreciate that position and utilize the assets in profitable ways you did not foresee.
Only the assets your child left untouched at the time of their passing will go to your grandchildren. Ultimately, your child will still decide if they want to keep assets inside the inheritance trust.
Can You Change the Beneficiaries of an Inheritance Trust?
The particulars of your situation will constantly develop over time. For example, the beneficiaries you felt good about selecting years ago may have shown that they do not deserve to receive anything from your estate. Because of those developments, you have decided that you want to change your beneficiaries.
So, can you do that if you have an inheritance trust?
A key advantage of using a will for estate planning is how easy it is to revoke. If you want to amend the terms of your will, you can simply destroy your existing will to render it invalid. You can tear, shred, or burn the document and stop worrying about it. Creating a new will can also make your old will worthless.
Trusts are more challenging to change, but the process is still manageable. You can change the beneficiaries of a revocable trust relatively easily. Altering the beneficiaries of an irrevocable trust will require obtaining the consent of the beneficiaries themselves, but it is still doable.
Changing the beneficiaries for your inheritance trust is also a fairly straightforward process. Since inheritance trusts give the grantors the power to appoint their beneficiaries as long as they are still alive, you can change your beneficiaries if you feel the need to do so.
Take full advantage of that feature to ensure that your assets will go to the people who deserve them the most.
What Are Trust Protectors?
While drawing up the terms for your inheritance trust, your estate planning attorney may ask you about trust protectors. You are likely unfamiliar with trust protectors, so let’s take this opportunity to learn more about them.
Trust protectors are parties that have the authority to change the terms of an inheritance trust. The trust protectors can make those amendments if there are significant changes to the laws governing inheritance trusts. They can also make changes based on the evolving nature of your family’s situation.
The job of a trust protector is to change the inheritance trust in such a way that it becomes more helpful to the beneficiaries. They can have different powers based on the terms of the trust.
Crucially, the trust protectors should not double as beneficiaries of your inheritance trust. Choosing a neutral party as your trust protector would be best so they can make impartial decisions.
Whether you are looking for someone who can set up your inheritance trust or a party that can serve as your trust protector, we at the Alber Law Group can help you out. Get in touch with us today, and let’s start working to secure the future of your loved ones.