What Is an Inheritor’s Trust?
If you expect to receive an inheritance, you may have options beyond taking the assets outright. One powerful strategy is an inheritor’s trust—a trust designed specifically to receive and protect what you inherit, while giving you a structured way to manage it over time.
Why an Inheritor’s Trust Matters
An inheritor’s trust is typically created by the future beneficiary (you) before you receive the inheritance. The goal is simple: instead of inherited money or property landing in your individual name—where it may be exposed to personal risks—it transfers into a trust that is built to protect it.
When the trust is the recipient, the trust (not you personally) becomes the legal owner of the inherited assets. That difference can matter in a big way if you ever face:
- creditor claims
- lawsuits
- a divorce or marital property dispute
- pressure to spend or give away assets too quickly
Why “After-the-Fact” Protection Is Hard
Once an inheritance is distributed directly into your name, protecting it can become much more complicated. Most states limit a person’s ability to create an irrevocable trust for their own benefit and then use it to shield assets from creditors. Trusts created this way are often called self-settled or first-party trusts, and they usually provide limited protection.
Some states allow a form of asset-protection trust (often called a domestic asset protection trust, or DAPT), but the rules vary widely, and those protections are not always respected across state lines.
That’s why planning before the inheritance is received is often the cleanest solution. With an inheritor’s trust, the assets funding the trust are coming from someone else (for example, a parent). That makes it a third-party trust, which generally offers stronger protection.
How an Inheritor’s Trust Works
An inheritor’s trust is structured so that the inheritance is directed to the trust rather than to you outright. The trust agreement typically includes:
- a spendthrift clause (to restrict creditor access)
- a more controlled or staged distribution plan
- clear distribution standards—often either:
- full trustee discretion (when a third party is trustee), or
- health, maintenance, and support standards (common if you serve as trustee)
The right structure depends on your goals, your family situation, and who will serve as trustee.
Key Benefits of an Inheritor’s Trust
An inheritor’s trust can provide meaningful advantages, including:
- Estate tax efficiency: In some designs, assets can be structured to reduce what is included in your taxable estate, helping preserve more wealth for the next generation.
- Probate avoidance: Assets held in trust generally pass outside your probate estate, which can protect privacy and reduce administrative cost and delay.
- Stronger asset protection: Trust-held inheritances are often better insulated from creditors, lawsuits, and divorce than assets held in your individual name.
- Control over investments: In some cases, the trust can name you as investment trustee, allowing you significant influence over how assets are managed.
- Flexibility through a limited power of appointment: You may be able to direct where remaining trust assets go at your death—within defined limits—so the plan can adapt if family circumstances change.
- Guardrails for spending: The trust can protect you from financial missteps, impulsive decisions, or pressure from others during vulnerable times.
Is an Inheritor’s Trust Right for You?
This is not a “one-size-fits-all” tool. An inheritor’s trust is especially helpful when you expect an inheritance that:
- is substantial enough to justify additional protection and planning
- could be exposed to creditor or divorce risk
- should be preserved for children or future heirs
- would benefit from long-term oversight and structure
Because these trusts depend on careful drafting, trustee design, and coordination with the person leaving you the inheritance, it’s important to plan proactively.
Talk with an Estate Planning Attorney
If you expect to receive an inheritance and want to protect it from probate, creditors, or divorce—while still maintaining meaningful control—an inheritor’s trust may be a strong fit. The key is getting it set up correctly before the inheritance is distributed.
If you’d like, our office can help you evaluate whether an inheritor’s trust makes sense for your legacy planning goals and coordinate the structure with your broader wills and trusts strategy.
