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April Harris Jackson

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How does someone get an inheritance from a trust?

How does someone get an inheritance from a trust?

What is a trust?

Trusts are a legal tool that can be used for many purposes including estate planning, asset protection, and income tax minimization. Trusts are a way of managing property with the intention of protecting it so that it can be passed on via inheritance to future generations.

Trusts establish a fiduciary relationship that allows a third party to hold a person’s assets on behalf of that person’s beneficiary or beneficiaries. The person establishing the trust and designating the beneficiaries is known as the “settlor” or “trustor,” and the third party who holds the assets on behalf of the beneficiaries is the “trustee.” 

Why do people create trusts?

Why do people create trusts in the first place? How do you know if you need a trust? First, people create trusts to control and protect their assets, especially for after they pass away. Trusts provide legal protection for the trustor’s real and personal property, and can also provide protection from creditors. Second, people create trusts because they are concerned about their money being spent on someone other than who it was intended for. Trusts are established to make sure that the trustor’s assets are distributed according to their wishes. If you have significant assets, especially a significant amount of real estate assets, or you have very specific wishes about how and when you want your assets distributed after you pass away, a trust might be for you. The best thing to do is talk to your attorney, who will help you determine whether a trust is the best way to protect your assets.

A beneficiary cannot just “take” an inheritance out of a trust

Since the purpose of a trust is to protect your assets, beneficiaries cannot just take their inheritance out of the trust as they please. The trustee must follow the terms of the trust established by the trustor.   

Minors & age clauses within trusts

People under the age of 18 legally cannot control their own money. A trust may be established for a minor beneficiary in order for them to have financial resources during their minority, but these resources are managed by the trustee according to the terms established by the trustor. For example, a trustor may include that their beneficiary receives a regular allowance from the trust.  

However, turning 18 does not necessarily mean that the beneficiary will automatically have unlimited access to the trust. Many trustors include payout clauses that extend the trust for a certain amount of time after the beneficiary turns 18. The policy behind this is that, while an 18-year-old may legally be able to control money and property and enter into contracts, the late teenage and early adult years are still a very developmental stage of life. An 18-year-old very well may not have the maturity and money management skills required to handle a significant amount of assets. Age clauses allow for the beneficiary to continue receiving periodic funds from the trust, but provide another level of protection of the trustor’s assets until the beneficiary reaches an age of presumed maturity, usually when the beneficiary reaches their mid-20s. 

Trusts for beneficiaries with special needs

These types of trusts are intended to provide for individuals with special needs while also allowing them to retain government benefits like social security or Medicaid. The Trustee will distribute funds from the trust as needed, or on a regular schedule, to take care of the special needs beneficiary’s living expenses and health care needs. 

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Do you have assets that need to be directed to a beneficiary in a specific manner?

The terms for receiving an inheritance are set when the trust is created

Overall, money moves from a trust only according to the terms set forth at the creation of the trust. This may mean a periodic payment to the beneficiary distributed by the trustee, lump-sum payment to the beneficiary at a certain age, or both. Assets cannot be removed from the trust unless the terms provide for it. To obtain assets from the trust that are not provided for within the terms of the trust, you likely will have to go to court. 

In conclusion

When it comes to estate planning, there are many ways that you can distribute your assets according to your wishes. One of the most popular ways is to create a trust.

There are many types of trusts out there. A trust can be either revocable or irrevocable and it can have unique clauses for receiving an inheritance. Trusts are in many ways the opposite of a will. A will is used to distribute property after someone dies, while a trust is set up while someone is alive and involves giving up control over the assets.

Not sure if a trust is right for you? Discuss your financial and family situation with a qualified attorney first.

Which of my assets pass through probate?

Which of my assets pass through probate?

Probate is the legal process of transferring some of a deceased person’s assets to their heirs. Once you or someone you love passes away, there may be questions about what specific assets and property within an estate actually have to go through probate court, and which assets pass directly to beneficiaries. The short answer is that only assets that a person owned that were in their own name, alone, must go through probate. 

The Probate Estate

Assets that go through probate make up what’s called the “probate estate.” For example, an individually owned bank account with no named beneficiary or a car titled only in an individual person’s name will pass through probate. 

All other assets pass to the named beneficiaries without going through the probate court. 

So, what are some specific things that do not pass through probate? 

Here are a few examples:

Property held in joint tenancy with a right of survivorship

Any assets or real property held in joint tenancy (with a right of survivorship specified in the deed) by the deceased and one or more other people doesn’t need to go through probate. When one owner dies, the survivor(s) automatically owns the property. 

Property held in tenancy by the entirety

If the deceased individual owned real estate with their spouse in tenancy by the entirety, the surviving spouse is automatically the sole owner when the other spouse passes away.

Payable-on-death bank accounts

A payable-on-death bank account is an account that passes to the beneficiary at the death of the account holder, therefore it does not pass through probate. Check with your bank to see whether your bank account(s) have payable-on-death beneficiaries. 

Assets registered in transfer-on-death form

Tennessee residents can name transfer-on-death beneficiaries for securities. Assets registered in the transfer-on-death form pass directly to the named beneficiary without needing to go through probate.

Life insurance proceeds

When life insurance policies or annuities specify a beneficiary, the proceeds do not go through probate.

Retirement accounts

The funds in retirement accounts do not go through probate if the account holder designated a beneficiary.

Trust assets

Assets held inside a Trust by a Trustee do not go through probate.

probate court setting with paper, law book, and gavel. Not all assets pass through probate.
Probate doesn’t have to be complicated

Learn how to prepare for and navigate probate

Overall, knowing which your assets must pass through probate, and which do not pass through probate, can save you a lot of unnecessary stress and confusion. Designating probate vs. non-probate assets is an important part of your overall estate plan strategy. It is important to take the time to talk to an attorney in order to identify your assets, decide who your beneficiaries should be, and determine what the best method is for those beneficiaries to receive their share. 

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