Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

REASONS FOR LEAVING AN INHERITANCE IN TRUST

It is not uncommon today for a parent to leave a beneficiary’s inheritance in a trust for their benefit instead of an outright gift of the funds at death. Factors which must be considered are: (i) the size of the inheritance; (ii) financial savvy and sophistication of the anticipated beneficiary; (iii) high divorce rate; and (iv) desire to protect the beneficiary from themselves. To protect the beneficiary, the following provision may be included into a trust instrument: Creditor Protection: The establishment of an irrevocable trust for a beneficiary upon the parent’s death. To the extent that distributions from the trust are solely discretionary (the trustee does not have to distribute anything to the beneficiary) the assets in the trust will not be attackable by the beneficiary’s creditors. Divorce: While the termination of a beneficiary’s marriage can’t ever be anticipated, a parent can help protect the inheritance being left to them by having it held in an irrevocable trust for their benefit. This will ensure the inheritance is not commingled with the beneficiary’s spouse’s assets and will be treated as their separate and non-marital property (potentially exempt for purposes of spousal support or alimony. Similar to a creditor protection provision, the trust can make all distributions to the beneficiary discretionary. The trust can also include a provision allowing the trustee to terminate the trust and distribute the trust assets to the beneficiary if they believe their marriage is stable or any other legal reason. Estate Tax Savings: A trust can include language to prevent inherited assets from being included in a beneficiary’s estate for estate tax purposes. Despite the federal estate tax exemption being $5,450,000.00 per individual, no crystal ball can tell us what the future holds.