Imagine that you have a son who is now grown and married. While crafting your estate planning strategy, you naturally decide to leave everything to him; after all, he is your only child. But if something were to ever happen to him, or he were to get divorced, how could you ensure his inheritance would be protected? Without a Heritage Trust, you cannot be so sure.

This is not meant to scare you. In fact, many of our clients pass inheritances from their trusts and into the names of their chosen beneficiaries, without those recipients encountering a single issue. That said, it is wise to consider every possible “what if” after you are gone.

What if your chosen beneficiaries are exposed to creditors and lawsuits? Suddenly, the money they received from you is exposed.

What if your only son goes through a complicated divorce? In an instant, that wealth could be awarded to his former spouse.

What if you have a loved one who relies on government needs-based benefits? Will a sudden windfall of money make them ineligible?

What if your son were to pass away? Theoretically, he could then leave everything to his wife, and if she were ever to remarry, that could open the door to money possibly ending up with someone else entirely.

Do you see where we are going with this? Adding a Heritage Trust to your existing estate plan ensures:

• An extra layer of protection for the wealth you intend to pass on
• Greater control over how and when your beneficiaries can access and use their inheritance
• Additional safeguards that may help address concerns involving creditors, unforeseen lawsuits, divorce, government benefit qualifications, and the future disposition of inherited assets.

The Inheritance Problem That the Heritage Trust Addresses

In most living trusts, the beneficiaries receive their inheritance “outright.” In other words, once the Trustor (for example, you) passes away, the trust’s assets are distributed directly from the trust and into the beneficiaries’ names. Sometimes this takes place immediately after the Trustor dies, or over a certain period of time, or as beneficiaries reach certain ages or meet certain requirements. Unfortunately, by receiving their inheritance outright and then “owning” it in their own names, the beneficiaries may become exposed to many of the issues mentioned above, not to mention potentially increased income taxes and more estate taxes.

The laws regarding divorce, creditor claims, lawsuits, qualification for needs-based government benefits, and income and estate taxes all turn upon the distinction between ownership of assets versus use and control. Therefore, the wealthy have known for years that the goal of good planning is to “own nothing but use and control everything.” A Heritage Trust adopts this time-tested adage. 

Instead of beneficiaries receiving their inheritance directly in their name (thus “owning” it outright), each beneficiary will instead receive his or her inheritance wrapped in a Heritage Trust that springs into action after the Trustor of the original living trust passes away.

In an instant, the inherited assets inside it can be used and controlled by the beneficiary—in such a manner as to virtually give him or her all of the same rights as outright ownership but with added protection against the various exposures that outright ownership brings.

Even If None of These Exposure Problems Occur … There Are Still Estate Taxes

So in the example at the beginning of this blog, let’s say that your only son prudently stewards his inheritance and does a great job of investing it. Well, when he eventually passes it down to his children, the next generation, there’s still the threat of a sizeable estate tax! If there is a Heritage Trust, inherited assets passing through it may be protected from estate tax rates of 45% or higher when the beneficiary dies, because the beneficiary does not own the assets.

If that sounds like a good deal, give us a call today to talk about your options.

Call Leigh Hilton PLLC Today!

At Leigh Hilton, PLLC, we want to be the resource in your back pocket and the voice in your ear who helps you be the hero that you are. Please call us so that we can help ensure your family will be taken care of in the best way possible. Proper estate planning, whether through a will, trust, or both, helps ensure your family is cared for.

Leigh Hilton PLLC wants to be your first call every time for any estate planning need. We look forward to serving you.

Thanks for reading!