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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. 

pile of papers that belong to a family estate plan with a trust and inheritance. there is a close up of a hand holding a pen, glasses, and a calculator
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.

How do I protect my Kid’s inheritance if they divorce?

How do I protect my Kid’s inheritance if they divorce?

As a parent, you want your child to lead a happy and fulfilling life and have healthy marriages of their own. However, it is hard to ignore the possibility of divorce. No matter how much you may love your child’s spouse, your interest is always in protecting your child. So when estate planning, how can you ensure that your child’s inheritance will not be split with their spouse in a divorce? 

Division of property in a divorce will depend upon whether the property is considered “separate property” or “marital property”. 

What is the difference between separate and marital property? Separate property is the property that belonged to an individual before marriage. This can include monetary assets, cars, real estate, and sometimes even pets. Marital property, on the other hand, is the property that was acquired or shared during the marriage. So what happens if your child puts their inheritance into a joint bank account? To answer this, we need to discuss how Tennessee law views inheritance.

How does Tennessee view “inherited” property in a divorce?

In Tennessee, inherited money or property is generally considered to be separate property. This means that whether your child inherits before or during their marriage, the court will treat the inheritance as exclusively belonging to your child. They are not obligated to share it with their spouse.  However, have you ever heard a long-married couple say “what’s mine is yours, what’s yours is mine?”  Many couples treat property this way, which can work well unless the couple decides to separate. This brings me to a very important point:

If your child puts an inheritance into a joint banking account shared with their spouse, it would become marital property subject to division at divorce.

How can you ensure that your child’s inheritance will be divorce-proof, no matter how your child handles the inheritance? 

One way to ensure the safety of your child’s inheritance is to set up a Family Trust. In general, a family trust is an estate planning tool that protects your family and your assets. A family trust is a three-party relationship between you (the Grantor), your child (the Beneficiary), and the person in charge of maintaining and distributing the assets in the trust (the Trustee). Through a Family Trust, you will be able to determine how and when your assets will be distributed by the Trustee to your Beneficiaries after your death. 

In the divorce context, a Family Trust is a great option because the property is held by the Trustee. This means that on paper, the property from the Trustee will not technically belong to your child. So in the event of a divorce, a court will not consider the assets from the trust for division. Family Trusts are generally flexible and easy to set up, and they are even cost-effective. Of course, if a Family Trust is not right for you, your estate planning attorney will be able to provide alternate options to achieve the same goal! 

close up of estate planning documents that have a family trust
Do you need a family trust to protect your children’s inheritance?

Of course, nobody wants to believe that their child’s marriage will end in divorce. However, estate planning is all about considering life’s “what if” questions.  In the end, setting up a trust for your family will allow you and your child the confidence that their inheritance is safe. 

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