There are many reasons why a person would prefer to receive their inheritance through a lifetime trust rather than by outright gift.
The right trust design can give an heir all the feeling of outright ownership with none, or at least few, of the risks associated with outright ownership. It is all in the details.
People often confuse the purpose of most trusts today. There is an erroneous assumption that if an heir receives the inheritance in trust that it is to protect the heir from the heir's own economic folly. This can still be a function of a trust, but it has not been the major reason for inheriting through trust in America for at least the last fifty years.
The beneficiary of the trust can also be the trustee or one of the trustees of the trust depending on how the trust is designed. The beneficiary can have the right to fire a trustee and get another. The trust can be written so broadly as to enable a trust to provide the heir with anything the heir might desire or so completely tightly drawn that the beneficiary cannot receive anything from the trust without proving the need under rules made up by the person creating the trust.
The key is the design of the trust itself. Always remember it is all in the words. But with the right words, to inherit through trust can be an extra gift to the heir that cannot be accomplished any other way.
The design is everything!
For example, with the right trust design an heir may have...
1. Creditor Protection.
If the heir is a trust beneficiary who gets sued and has a judgment placed against him, the heir can lose whatever is owned outside of the trust, but the trust assets cannot be touched.
The trustee can pay the bills of the heir directly and never subject any trust assets to risk of loss in this manner.
Asset protection is a popular feature of trusts for most Americans. Generally, asset protection is a complex subject, costly to put into place and subject to all kinds of risk and possibilities of not holding up to legal scrutiny. Not so with inherited assets that are received through trust, and the cost to put such a trust in place is minimal compared to trying to protect the assets after having been inherited. Often, it is simply not possible to achieve creditor protection in any cost efficient manner after the assets have been inherited.
2. Death Tax Planning
Leaving property to an heir in trust is often the only way to do many different types of death tax planning. This is a complex subject that is dependent upon many individualized factors.
For example millions of dollars can be inherited through a trust and that trust can grow to a billion dollars (why talk small numbers?) When the original heir passes away, the next person to inherit the trust estate can do so totally death tax free or the property can continue in trust forever and never be subject to federal death taxation - ever.
3. Built in prenuptial contract
Quite apart from typical creditor protection is the protection of the heir from the economics of marriage. In-laws will not take from the trust unless it is written to allow that. If a person inherits from their spouse through trust, not only can the spouse be assured that the inherited assets are not going to the heir's next spouse, but the heir does not have to feel pressure from the next spouse to give over what was inherited and both the person leaving the estate and the person inheriting the estate are free from such worries without actually doing a prenuptial contract.
4. Certainty of who will take after death
A trust that lasts a life time will say who will inherit when the heir passes away, and, with the right design, it can even give the heir the opportunity to fine tune who will inherit the trust estate at your death.