An inheritance might need protection from any number of dangers, simple financial immaturity, or a lack of investment experience. For example: the temptations of luxurious living, addictions, attacks by scam artists, claims by creditors, and well-intentioned but poorly planned business ventures.

An inheritance trust provides a barrier to financial misjudgment, even as it delivers professional investment management of assets. The trust should be drafted to suit the specific family circumstances. Incentives may be included to provide positive reinforcement to the beneficiary. The trust principal may be distributed to the beneficiary over time on a planned schedule (so much at age 25, age 35, age 45 and so on) or upon the occurrence of specified events (completion of education, marriage or the beginning of a professional practice, for example). Or these distribution decisions can be left to the discretion of the trustee. A trust may transform an inheritance into a lifetime resource for financial security.
Here are examples of trusts that protect an inheritance:
  • Gifts-to-minors trust. For children who are minors, contributions of up to $15,000 per year to this account will avoid gift taxes. A married couple may together set aside $30,000 each year for each child, so in a few years a significant source of capital may be built up. Assets may be used for any purpose, including education funding, and must pass to the child when he or she reaches age 21.
  • Spendthrift trust. The beneficiary is forbidden to transfer any financial interest that he or she has in the trust and may not compel distributions.
  • Discretionary trust. The trustee has sole discretion over what to do with trust income or principal, so that the beneficiary has no interest in the trust that can be transferred.
  • Support trust. The beneficiary’s interest in the trust is limited to so much of the income as is needed for support, education and maintenance. 
These are but starting points to begin a discussion of the benefits of a trust-based financial plan. Wealth protection trusts need to be tailored to unique requirements of the family to be served.

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Not FDIC insured / May lose value / Not financial institution guaranteed / Not a bank deposit / Not insured by any federal government agency