When is a trust worth it for an inheritance?

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When is a trust worth it for an inheritance?

Post by interplanetjanet » Fri Aug 29, 2014 6:24 pm

Say you have a gift or guaranteed inheritance (pension plan payout, etc) coming your way. At what point does it make sense to set up a trust (for your benefit) to become the beneficiary of it, for asset protection reasons?

A broad question, I know.

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Re: When is a trust worth it for an inheritance?

Post by Gill » Fri Aug 29, 2014 7:25 pm

Can you elaborate please? What type of asset and what kind of trust?
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Re: When is a trust worth it for an inheritance?

Post by bsteiner » Sat Aug 30, 2014 7:37 pm

After the person has died and you receive your inheritance, it's too late. The inheritance will be included in your estate (or you'll be making a taxable gift, or both), and it will be subject to your creditors (at least initially).

The solution is for the person to revise his/her Will to leave your inheritance to you in trust rather than outright. In this way, it won't be included in your estate, and it will be protected against your creditors and spouses. You can still control the trust. For example, you can be a trustee, you can have the power to remove and replace your co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and you can have the power to appoint (give or leave) the trust assets to anyone you want (other than yourself or your estate or creditors).

Whether this makes sense depends on whether the amount involved is sufficient to warrant the effort to administer the trust, mainly filing annual income tax returns for the trust. If the trust invests in a small number of mutual funds, the returns won't be particularly difficult.

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Re: When is a trust worth it for an inheritance?

Post by john94549 » Sat Aug 30, 2014 8:29 pm

The settlor of the Trust (the person with the assets) sets up the Trust with the thought of passing the assets outside Probate. Cheaper and cleaner, as a general rule. And, having recently been through the process (as successor Trustee/heir), it is much cleaner and simpler.

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