How Does an Inheritance Work?



Karen Sinchak Higby

One of the unique features of our trust is that it continues long after the estate owner dies – so that each inheritance can be protected during the lifetime of the heir (from divorce, bankruptcy, creditor problems and the like) and so that the inherited assets can avoid death taxes at the heir’s death, to the greatest extent permitted by law.

In essence, each heir has his/her own trust, inside the original trust.  These inheritance trusts “spring” into being when the estate owner dies.  The legal document creating each heir’s trust is the original trust; therefore, no other legal work is required to create them.  Instead, the creation of each inheritance trust is handled by the successor trust, who simply re-titles assets assigned to a particular heir in his/her new trust, under a new taxpayer number.

The heir’s trust comes under the heir’s dominion and control at the time(s) specified in the original trust.  After that time, it is up to the heir himself/herself to determine how to manage and distribute the inheritance.  Before the “control” age(s), the successor trustee manages and distributes the inheritance for the benefit of the heir; ordinarily, funds may be used for education, health care, maintenance and support.

Once an heir’s inheritance trust springs into being, assets may be purchased inside that trust.  For example, assume that an heir who is in control (because he/she has reached the proper age) decides to purchase a home.  There are several options available to the heir.  One option is to make a distribution from the trust to the heir himself, for the purchase of the home; title to the home may be placed in the heir’s name alone, in joint tenancy with the heir’s spouse, or in any other manner the heir elects.  A second option is to use the funds inside the trust to purchase the home and to take title to the home in the trust name.  By doing so, the heir retains all of the benefits provided by the trust vis a vis the home, i.e., divorce protection, bankruptcy protection, etc.  A third option for the heir is to borrow money from his/her trust for the home purchase.  Each heir should seek counsel from a knowledgeable professional about the various options available and the advantages/disadvantages of each.  The flexibility of the trust allows each heir individually to choose an option which best meets his/her needs.

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