Best Way to Inherit Property

The best way to inherit property is “in trust”. Why? Because if you are the beneficiary (beneficial owner), then you are the one who is to benefit from the property. You are the one who can use the property, spend it, enjoy it. If you are also the trustee, then you are also the legal owner and as such must adhere to the terms of the trust. Now, if the trust says you can get all the income annually and that you can invade the principal for your needs in your accustomed manner of living, then there is no real restriction on your use and enjoyment of the property. So far so good, right? Now, if the trust states that you shall not be subject to the claims of your creditors, and that the property shall not be subject to pledge, attachment, etc., then guess what? The property you have the full right to enjoy cannot be legally taken from you in a lawsuit, whether it is a divorce or other lawsuit. Now, if you owe the IRS money or you are delinquent on child support payments, then the trust can be pierced. In addition, the property will not be subject to the federal estate tax in your estate. Why? Because the standard of distribution for “your needs” is ascertainable. Usually, we would say the trust property is for the beneficiary’s needs related to their health, education, and maintenance in their accustomed manner of living.

Now, if you are the one planning your estate, you should give serious thought to leaving your assets “in trust” for loved ones. All of the above benefits can easily be achieved and also using trust law wisely will enable you to make sure your property will stay in your family.

Let’s say Sam has a child named Marjorie, and she has two boys, Max and Luther. Marjorie is married to Jake. Based on the above, what should Sam do? Leave his assets to Marjorie “in trust” with a remainder to Max and Luther. Sam can spell out that Marjorie has right to all the income and can use principal for her needs. He can also spell out that if Marjorie passes, the rest of the trust assets will go to Max and Luther, not Jake. Now, we would usually dictate that if Max or Luther were under age 25, their share would be in trust for their benefit. Result: If Marjorie divorces Jake, he will not get any of Sam’s money as it will not be considered marital property subject to division. Why? Because the property held in trust for Marjorie’s benefit will be protected by a spendthrift clause. Furthermore, the property will stay in the family and will not be subject to estate taxes, other lawsuits and creditor claims and unnecessary probate. For all the above reasons, the best way to inherit property is “in trust”.

Contributed by:

Mark F. Winn, J.D., Master of Laws, LL.M. in Estate Planning, is a local tax, asset protection and estate planning attorney.