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2 ways a trust can protect an inheritance

On Behalf of | May 4, 2023 | Estate Planning

You do not have to leave an inheritance directly to an heir. You don’t have to cut them a check for $100,000, for example. Nor do you have to leave their inheritance vulnerable to creditors and disputes by articulating your wishes via your will. You can, instead, put that inheritance into a trust. When you pass away, the trust will dictate exactly how and when the money will pass on to your heir.

There are many benefits to using a trust, such as favorable tax outcomes and the fact that you get to have more control over how the money is spent. But one of the biggest benefits is simply that the trust can protect the inheritance. You may be worried that the money that you’ve worked so hard for is going to be lost. A trust can help to keep that from happening. Here are two ways that this approach can achieve that end.

Keeping money from divorce or creditors

First of all, if your heir gets divorced or runs into debt issues, they may have to divide their money with their ex or pay money to creditors. An inheritance could be placed in jeopardy as a result. But if the inheritance is in a trust, then their ex has no claim to that money since it cannot be comingled and rendered a marital asset. Additionally, creditors cannot come after assets that are held in a trust because they are not owned by the individual who owes that debt. Instead, the trust itself has ownership over them.

Dictating someone’s access to their assets

Also, as noted above, a trust can give you control over how the money in question is used. You can ensure that your heir makes sound financial decisions and, essentially, protect them from themselves.

For example, say that your heir is still young and they are just starting college. You were young once and in college, so you know exactly how you would have spent a major inheritance at that time. You may have wasted it. But putting the money into a trust will allow you to stipulate that it has to be used for college education costs, for example, or that your heir shouldn’t get any of the money until they turn 25.

Setting up a trust

These are just a few examples of why you may want to use a trust and how it can help to protect your family’s money. Take the time to look into all of the legal steps that will be necessary to set it up and seek legal guidance if you ultimately choose to craft a trust – or multiple trusts – as part of your legacy.