When you leave property to someone, you also decide how they receive it. They can receive it outright, in their own name. Or it can go into a trust that someone manages for them.
Both options are explained below, so you can talk them through with your attorney.
This article is about trusts that start at your death to hold an inheritance for someone. They can be written into a Will or a Revocable Trust. They are different from a Revocable Trust you set up and use during your life. To compare a Will and a Revocable Trust, see this article for Washington or for Oregon.
Why this decision matters
How a beneficiary receives an inheritance affects:
- How much control they have over it
- How well it is protected from their creditors or a divorce
- Whether it adds to their own estate tax later
- How much management and paperwork it takes after your death
- Whether it lasts for long-term needs, such as education or retirement
There is no single right answer. Many people choose differently for different beneficiaries, or leave some property outright and some in trust.
Key terms
- Outright distribution: The beneficiary receives the property in their own name, with full control.
- Distribution in trust: The property goes into a trust, and a Trustee manages it for the beneficiary under rules you set.
- Testamentary trust: A trust that starts at your death to hold property for someone, such as a surviving spouse or a child. It can be written into a Will or a Revocable Trust.
- Trustee: The person or company that manages trust property and makes distributions to the beneficiary.
- Beneficiary: The person who receives the inheritance or benefits from the trust.
Leaving property outright
An outright gift goes straight to the beneficiary, in their own name. It is the simplest choice, but it offers little protection once the property is theirs.
Why people choose it
An outright gift is simple. There are no rules to interpret and no Trustee to manage. The beneficiary decides how to use, invest, or spend what they receive.
It often fits an adult beneficiary who handles money well and has a stable life.
What to weigh
Once the property is theirs, their creditors can reach it, such as someone who sues them.
It also becomes part of their own estate. If their estate is large when they die, it may face estate tax then.
And a beneficiary who has never managed a large sum may struggle with it. A sudden inheritance can disappear quickly.
An inheritance is the beneficiary’s own separate property, even if they are married. But it can lose that status if it is mixed with money the couple shares. Depositing it in a joint account or using it toward a shared home are common examples. Once it can no longer be traced, it may be divided in a divorce.
Leaving property in a trust
With a trust, a Trustee holds and manages the inheritance for the beneficiary. The Trustee follows the rules you set in your Will or Revocable Trust.
Why people choose it
A Trustee manages and invests the property and makes distributions under the rules you set. Because the trust owns the property, it is usually better protected from the beneficiary’s creditors.
If protecting a beneficiary from creditors matters to you, a trust is often the answer. But how well it protects them depends on the trust’s terms and on who serves as Trustee. Talk this through with your attorney.
A trust also helps in a divorce. It keeps the inheritance in its own account, apart from money the couple shares. That makes it much less likely to be mixed in and lose its separate status. The protection is strong, but not complete.
A trust also lets you give the inheritance a purpose. For example, you can direct the Trustee to cover education costs, help with a first home, or provide steady support in retirement.
For larger estates, a trust can hold property for a child and later pass it to grandchildren without adding to the child’s taxable estate.
A beneficiary can sometimes serve as their own Trustee. That gives them a say, but it can weaken the protection. Clear rules help avoid conflicts if other family members also benefit.
What to weigh
A trust takes ongoing work. The Trustee keeps records, files a tax return for the trust each year, and keeps the trust’s money in its own account. A professional Trustee or accountant adds cost.
Some beneficiaries feel a trust limits them, especially if someone else is the Trustee. Tension can build if expectations are not clear from the start.
When a trust is often worth it
- The beneficiary is a minor or a young adult.
- The beneficiary struggles with money, addiction, or pressure from others.
- The beneficiary has a disability and receives, or may need, government benefits. A Special Needs Trust lets the Trustee support them without cutting off those benefits.
- The beneficiary works in a field with a high risk of lawsuits, or has an unstable marriage.
- You want what is left at the beneficiary’s death to pass to your grandchildren, not to an in-law.
Questions to think about
- How old will each beneficiary likely be when they inherit?
- How well does each beneficiary handle money today?
- Would a trust feel like help, or like a lack of trust?
- Who would you want as Trustee, and would that person get along with the beneficiary?
Want to read more?
These articles are optional.
- Setting the rules for a trust: Ages, purposes, and who decides. See this article.
- Trusts for a surviving spouse: Providing for your spouse and your other beneficiaries. See this article.
- Will or Revocable Trust: Either can hold the trusts described here. See this article for Washington or for Oregon.
- Glossary: Common estate planning terms. See this article.
- Questionnaire help: If you are filling in the questionnaire, see the help for the Estate Planning Goals page.
- Beneficiary designations: How retirement accounts, life insurance and other property outside your Will fit with your plan. See this article.
- A beneficiary with a disability: Providing for someone who receives benefits. See this article.