Have you recently inherited an irrevocable trust, or do you expect you will soon? If so, you’re probably wondering about the legal and financial implications of this inheritance. Here’s what you need to know, including what you should do next, how assets are distributed, and how you can avoid potential challenges.
Understanding Irrevocable Trusts
An irrevocable trust is a type of trust in which the person who created the trust (called a grantor) does not have the right to amend the trust’s terms or revoke it after establishing it. Furthermore, the grantor cannot recover assets placed into an irrevocable trust. A party called a trustee manages the trust’s assets and distributes principal and income to one or more named beneficiaries as required or permitted by the trust document.
People frequently use irrevocable trusts in estate planning. Trusts allow individuals to pass assets to heirs without going through the potentially costly and time-consuming probate process. A grantor can nominate successor beneficiaries to replace initial beneficiaries as they pass away or set up the irrevocable trust to terminate at a specific time or upon a specific event and distribute its assets to named beneficiaries.
Steps After Inheriting an Irrevocable Trust
Steps you should take when you inherit from an irrevocable trust include:
- Review the trust document: First, you should obtain a copy of the trust document to understand the terms and conditions of the distributions you will receive from the trust. In particular, you will want to confirm whether you will receive regular distributions as a beneficiary or whether the trust will terminate and distribute its assets to you.
- Understand the trustee’s role: You should also understand the trustee’s authority under the trust document, including whether the trust requires the trustee to make specific distributions or gives the trustee discretion on the timing and amount of distributions.
Distribution of Assets
Distributions from an irrevocable trust may take one of several forms, such as:
- Lump-sum payments: The trust document may entitle a beneficiary to one lump-sum payment. Alternatively, a beneficiary will receive a lump-sum payment when the trust terminates and distributes its assets to designated beneficiaries.
- Scheduled payments: A trust may require the trustee to make regular payments to beneficiaries, such as monthly or quarterly.
- Conditional distributions: The trust document may entitle a beneficiary to a distribution upon meeting specific conditions designated by the grantor, such as reaching a certain age or achieving milestones like graduating from college.
Common Challenges
Challenges that may arise when you gain the right to a distribution from an irrevocable trust include:
- Potential conflicts with the trustee or other beneficiaries, especially when the trust document gives the trustee discretion over distributions
- Restrictions/prerequisites for distributions
- Limited trust assets
Contact a Trusts Attorney
If you’ve inherited assets in an irrevocable trust, a knowledgeable trusts attorney from Peterson, Berk & Cross, S.C. can walk you through your rights and options. Contact us today for an initial consultation with our legal team to learn more about what happens when you inherit an irrevocable trust.