How to Leave an Inheritance to a Child or Other Beneficiary

You have worked hard your entire life and have accumulated some savings. There will be some left after you are gone. You want to leave what’s left to your children or other loved ones. If you are like many others whose estate plans I have reviewed, you may have just left immediate outright distributions to them after your death.

Outright distributions.

What you may be unaware of is that if you leave outright distributions to your beneficiaries, those bequests are available to satisfy claims against them from lawsuits and other creditors. In addition, if any of your beneficiaries deposits their inheritance into a joint account with their spouse or co-mingles it with marital property, the inheritance may become part of the marital estate and subject to a divorce property settlement. And what about beneficiaries who have addictions, are lazy, have poor money management skills, are on governmental assistance or have predator spouses?

If any beneficiary is a minor at the time of distribution, what you leave that beneficiary would have to be held in a probate court-supervised conservatorship until the beneficiary reaches age 18. At age 18, your beneficiary miraculously gains all the wisdom and insight of adulthood and can handle large sums of money. At age 18, the law says that a person is an adult and shall have the entire inheritance being held in the conservatorship. Oftentimes, when a youth receives a large sum of money at age 18, he ends up going to college, the University of Corvette.

Staggered distributions.

In order to avoid these outright distributions, you may have set up a trust which has staggered distributions. A portion of the inheritance is distributed at certain ages, such as one-third each at 25, 30 and 35. Staggered distributions were once a very popular planning technique 20 -30 years ago, and some attorneys are still using them. Although delaying distributions may protect your beneficiaries from making inappropriate decisions during early adulthood, there are no protections for the distributions.

A beneficiary’s inheritance could still be available to satisfy claims from lawsuits and other creditors, and divorcing spouses. We administered one estate in which more than $100,000 of a son’s inheritance was garnished by his ex-wife for back-alimony. Although the son did owe the debt, I am pretty sure that mom and dad wouldn’t have wanted their son’s ex to get their money. And just like outright distributions, there are no protections for beneficiaries who have addictions, are lazy, have poor money management skills, are on governmental assistance or have predator spouses.

Common trust.

If your beneficiaries are younger, you may want to place all of your assets in a common trust for the benefit of all your beneficiaries until the youngest one reaches a certain age or receives a college degree. This allows the family bucket to take care of the kids when they are younger, much like a parent would. Different children are at different stages in life, and have different needs with different costs. If one child is already out of college at the time of your death, do you want the your other kids’ college costs coming out of their share?

In order to avoid this inequity, you may want to set up a common trust in which after death, the entire trust estate would go into one bucket. The trust funds would be used for any of the kids, as needed. Once the youngest child reaches a certain age, say age 25, or if earlier, gets a college degree, the assets in the common trust are then split into equal shares for the kids.

Lifetime trusts.

You may want to consider lifetime trusts for your children or other beneficiaries. These are usually a better option than outright or staggered distributions, and regularly used after a common trust. Typically each beneficiary has a trust bucket which holds their share of your inheritance. The beneficiary has full control of their bucket and can access any funds for their needs, but no one else can.

If a beneficiary has catastrophic creditor as a result of a car accident, lawsuit or otherwise, the trust assets would be protected from those creditors. Similarly, if a married beneficiary never commingles trust assets with marital assets, the trust assets would generally be considered that beneficiary’s separate property that would not be subject to a divorce property settlement.

If money management skills are not one of the gifts that God has given one of your beneficiaries, you may want to appoint an independent professional trustee to manage that beneficiary’s trust share. The trustee would control the inheritance and would have the discretion to dole out the funds as necessary to provide for your beneficiary in accordance with your instructions.

Your beneficiary may not be totally lacking in money management skills, but may need someone to assist them. In those situations, you can make the beneficiary a co-trustee with a professional trustee. The beneficiary then could learn money management skills from their co-trustee and could become the controlling trustee after a certain period of time, or maybe at the discretion of their co-trustee.

By using a special needs trust, you can leave an inheritance to a beneficiary on income- or asset-based governmental assistance, without disqualifying them from that assistance.

If you have a lazy beneficiary who doesn’t like to work, you can put incentive provisions in the trust that say that the beneficiary gets nothing unless he or she works. If the beneficiary works, the trustee has the discretion to match the income. The beneficiary has the opportunity to double his or her earned income by working.

You may have a 40 or 50 year old beneficiary who hasn’t grown up and still likes to party like a 20 year old. In that case, you can set up a trust to provide for basic needs, such as food, shelter and transportation, for the beneficiary’s lifetime, in the trustee’s discretion. However, none of your money could be used to promote a lifestyle for which you do not want to provide.

You can put provisions in your trust to take effect if a beneficiary has some sort of addiction to alcohol, drugs or gambling. Trust assets would provide for the beneficiary and assist with rehab to overcome the addiction. If, after a certain period of time, your beneficiary has not successfully overcome the addiction, then the inheritance could go to the next level of beneficiaries, such as their children.

If there is anything else left after a beneficiary’s death, the inheritance does not go through probate. It goes to other beneficiaries who you choose, such as that beneficiary’s descendants. Or you can give a beneficiary the power to leave anything left in his or her separate trust at their death to any person or organization they choose.

And these protections can continue for succeeding generations. So long as any real estate is removed from the trust after 90 years, any unspent funds held in trust can continue these protections for succeeding beneficiaries forever. Michigan now allows perpetual dynasty trusts.

In addition, for very large estates, you can put generation skipping transfer tax provisions in these lifetime trusts to get additional tax exemptions to allow assets to be transferred down to succeeding generations without any estate tax assessments.


In a perfect world you would not need these protections and I would be out of a job. But, the job of your estate planning attorney is to prepare your estate for potential risks. Lifetime trusts are a valuable tool to address these risks and to give what you have, to whom you want when you want the way you want, all at the lowest overall cost to you and those you love.

By: Matthew M. Wallace, CPA, JD

Published edited September 02, 2018 in The Times Herald newspaper Port Huron, Michigan as: How to leave your child an inheritance

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