Descendants Trusts & Tax Planning

big family gathered around a dinner table

With tax planning becoming less of an issue for the average client, the focus in estate planning has shifted to asset protection for intended beneficiaries. As attorneys, we often hear our clients tell us that they plan to leave everything equally to their children, but that they are concerned that one (or more than one!) has creditor issues or are going through a divorce. How can they ensure that whatever they leave to this child will not have to be spent on his or her debts or given to his or her soon-to-be ex-spouse? The answer is with the use of Descendants Trusts.

What Is a Descendants Trust?

Whether an estate plan includes a traditional last will and testament or a trust, planners should direct that any asset left to a child with potential creditors or divorces be left in a Descendants Trust, also commonly referred to as an Inheritor’s Trust. This is a trust written into the last will and testament or trust document that does not come into effect until after the death of the creator, which will protect the child’s inheritance from outside invaders, including creditors or divorcing spouses. To the extent that assets are left in the trust, creditors do not have access and the assets are considered separate and apart from the marital estate.

Typically, the Descendants Trust provides that any income generated from an asset in the trust shall be paid to the beneficiary and principal distributions can be made for health, education, maintenance and support if the child is his or her own Trustee. If there is an independent trustee, then assets can be paid at the discretion of the trustee. An independent trustee is a person not related by blood or marriage to the beneficiary and is not subordinate to the beneficiary, i.e. does not work for the beneficiary.  However, your lawyer can customize the language to provide for you and your beneficiaries’ specific circumstances.

While a beneficiary can be their own trustee, if there is a concern about the child’s “questionable spending habits,” a trust creator can consider naming someone else to be trustee for him or her, or naming a co-trustee to act with the child. This could be a sibling or another trusted individual.

It is important to remember that many assets are disposed of by beneficiary designation, such as retirement accounts and life insurance. This means that once you draft the Descendants Trust in your estate plan, you must designate the trust created for their benefit as the beneficiary for their share of your assets. This will ensure that the asset passes to their trust and not to them directly. However, be cautious when designating a trust as the beneficiary of retirement assets. With the passing of the Secure Act, leaving a retirement account to an adult child (directly or in a trust) will result in the child having to take the entire principal within ten years – unless the child is disabled. The principal of the retirement account continues to grow tax-deferred but the distributions are taxable as ordinary income to the recipient.

For a trust can be designated as a beneficiary of a retirement account, there must be certain provisions included so that the trust can accept the retirement account. Accordingly, be sure to discuss any beneficiary designations with your estate planning attorney before executing same.

Estate Planning for Your Beneficiaries

Whether your estate plan includes a simple Will or a complicated trust-based plan, incorporating Descendants Trusts is an excellent way to safeguard assets for your intended beneficiaries.


Burner Law Group, P.C.

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