An inheritance in trust provides a barrier to financial misjudgment, even as it delivers professional investment management of assets. 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.
Types of Trusts that Protect an Inheritance
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 the unique requirements of the family to be served.
For children who are minors, contributions of up to $16,000 per year to this account will avoid gift taxes. A married couple may together set aside $32,000 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.
The beneficiary is forbidden to transfer any financial interest that he or she has in the trust, and may not compel distributions.
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.
The beneficiary’s interest in the trust is limited to so much of the income as is needed for support, education, and maintenance.