Is a Delayed Inheritance Really an Enhanced Inheritance?

Whether you have accumulated a little or a lot of wealth over your lifetime, it is likely that you have some particular thoughts on how you would like those assets to be used by loved ones after your death. Maybe you would like the assets to be used as a down payment on a home, be applied toward college tuition, or fund a dream vacation. Unfortunately, without specific guidance from you, money that is left outright to your loved ones probably won’t be used the way you would like. For these reasons, leaving a delayed inheritance may be the best option.

 Benefits of Delay

 There are several reasons not to leave an outright distribution to your loved ones. Too often, people overlook the benefit of leaving assets in a trust –even for adult children. When a trust is set up, you can limit annual distributions or give the trustee discretion to determine when distributions are made. You can have the trustee –or the individual in charge of managing the funds –pay the beneficiaries ‘expenses directly to providers instead of distributing money to your loved one. You can also give a trustee the authority to stop distributions and resume them according to your wishes.

Aside from having more control over how the assets will be used, there are also several protections that come from a trust as opposed to an outright distribution. A trust can protect the wealth from the beneficiary’s creditors –most states allow for creditors to assert claims only against income and principal the beneficiary is entitled to receive. If the distribution is discretionary, the creditor can only seize the money once it has been distributed to the beneficiary. Likewise, a trust protects the beneficiary in marriage and divorce. When a distribution is made outright, the beneficiary’s spouse can claim a share of those assets in divorce or separation as marital property. When assets are distributed to a beneficiary trust, they are typically not considered part of the marital estate.

Bottom line: While a trust may not be appropriate in every situation, delaying inheritances as opposed to issuing an outright distribution often enhances the inheritance through additional protections and helps ensure that the legacy you worked hard to build can be passed to the next generation.

If you have questions about distributions, trusts or any other estate planning concerns, contact us today.

Posted in: Estate Planning