Keep Your Family's Wealth in Your Family: The Power of Inheritance Trusts

When you think about leaving an inheritance to your children, you probably imagine it as a gift—a way to provide for them, give them security, and help them build the life they want. But what if that inheritance could be lost in a divorce? Or seized by creditors? Or end up benefiting someone outside your family?

It happens more often than you might think. Fortunately, there's a better way to structure your estate plan: inheritance trusts.

The Problem with Outright Distribution

Many estate plans follow a simple pattern. When you pass away, your assets are distributed directly to your beneficiaries—your children, grandchildren, or other loved ones. They receive the inheritance outright, and it becomes theirs to do with as they please.

On the surface, this seems straightforward. But it comes with significant risks.

If your child goes through a divorce, their inheritance could be considered marital property, depending on how it's been handled and state law. In a contentious divorce, assets you worked a lifetime to build could end up in the hands of an ex-spouse.

If your beneficiary faces a lawsuit, bankruptcy, or creditor issues, those assets could be vulnerable to seizure. A car accident, a failed business venture, or any number of unforeseen circumstances could put your family's wealth at risk.

And once assets are distributed outright, you lose control over how they're used and where they ultimately end up.

How Inheritance Trusts Protect Your Legacy

An inheritance trust offers a more protective approach. Instead of distributing assets directly to your beneficiaries when you pass, your estate plan directs that those asset be placed in a trust, which you’ve already set up as part of your estate plan, for their benefit.

Your beneficiary can serve as the trustee of their own inheritance trust, which means they control the assetts and can access the funds for their needs—buying a home, starting a business, paying for education, or simply living their life. In practical terms, they have the same access they would if they'd received the inheritance outright. But legally, the assets remain in the trust. And that makes all the difference when it comes to protecting the assets.

Protection from Divorce

When assets are held in an inheritance trust, they're generally not considered marital property. If your child goes through a divorce, the inheritance you left them remains protected and stays in your family bloodline. Their spouse has no claim to those trust assets.

This isn't about being pessimistic about your children's marriages. It's about being realistic. Even the strongest relationships can end, and protecting your family's wealth isn't a judgment on anyone—it's just good planning.

Protection from Creditors

Assets held in a properly structured inheritance trust are also protected from your beneficiary's creditors. If your child faces a lawsuit, bankruptcy, or other financial difficulties, creditors generally cannot reach assets in the trust to satisfy debts.

Again, this isn't about expecting your children to be irresponsible. Life is unpredictable. Medical emergencies, business failures, accidents—any number of circumstances can create financial liability. An inheritance trust ensures that, no matter what happens, your legacy remains intact.

Keeping Assets in Your Family

Perhaps the most important benefit of an inheritance trust is that it keeps your assets in your family. The trust can be structured so that when your child passes away, any remaining assets go to your grandchildren or other family members—not to an ex-spouse, not to creditors, and not outside the family. If this sounds too restrictive, you can also give you child the ability to direct what happens to the funds in the trust, but within perameters you’ve set, such as they can only leave the assets to their children, or to your children or descendants.

You worked hard for what you've built. An inheritance trust ensures it benefits the people you intended it to benefit, for generations to come.

Flexibility When It Matters

One concern people sometimes have about inheritance trusts is that they sound restrictive. But they don't have to be. You can design the trust to be as flexible or as structured as you want. Your beneficiary can have broad discretion to use trust assets for any purpose. Or you can include provisions about how and when distributions should be made. You can allow your child to serve as sole trustee, or require a co-trustee for added protection. The structure is entirely up to you.

It's Not About Distrust—It's About Protection

Setting up an inheritance trust doesn't mean you don't trust your children. It means you love them enough to protect them from circumstances beyond their control. Divorce, lawsuits, creditors—these aren't character flaws. They're realities of life. An inheritance trust is simply a tool that shields your family's wealth from these risks while still giving your beneficiaries full practical benefit of their inheritance.

Your Family Deserves This Protection

Estate planning is about more than deciding who gets what. It's about protecting the people you love and ensuring your legacy endures. Inheritance trusts allow you to do exactly that—to provide for your children while keeping your family's wealth in your family, protected and secure.

At Shaila Buckley Law we are happy to talk with you about Inheritance Trusts and help you include one as part of your estate plan.