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What is the Difference Between a Trust and an Inheritance?

A trust is a legal entity that holds assets for beneficiaries, managed by a trustee, offering control over when and how assets are distributed. Inheritance is a transfer of assets upon someone's death, typically through a will, without the structured oversight of a trust. Understanding these mechanisms can significantly impact your financial legacy. How will you choose to secure your assets for the future?
Christopher John
Christopher John

The difference between a trust and an inheritance is that a trust is a device that holds property or assets for beneficiaries for a specified period and, in some instances, for an indefinite period. In contrast, beneficiaries of an inheritance are able to take actual possession and control of property or assets when they inherit. There are several other key differences between a trust and an inheritance. For instance, a person can create and use a trust to transfer the benefits of property and assets while the person is alive. With an inheritance, the owner of the property and assets must die before the items can be inherited.

Another unique difference between a trust and an inheritance is that the person who creates a trust can also be the trustee and the beneficiary of trust. This is not possible with an inheritance, because a person cannot inherit something he or she already owns. Nor can a person inherit something when the person is dead. With a trust, a person can place his or her own property into a trust, maintain control of the property as a trustee, and enjoy the benefits of the property in the trust. The person who creates the trust must manage the property that he or she placed into the trust in accordance with the trust instrument, which is a document that creates the trust and establishes how a trustee must manage the property in the trust.

Businessman with a briefcase
Businessman with a briefcase

A trust and an inheritance also differ because a person can set up a trust in countless ways. The only restriction is that the trust instrument not function for an illegal purpose. Lawyers often help set up a trust to avoid or minimize taxes, to ensure that pets will be taken care after a person dies, to protect assets, or to hold property until someone reaches a particular age, among many other reasons. Both a trust and an inheritance may provide benefits to other people, but it is the manner in which the benefits are passed to those people that is the primary distinction.

With an inheritance, a person will simply hand down whatever property he or she owned, and this happens when the person dies. The person might do this by making a will. Even if the person does not make a valid will, the property will still pass down as an inheritance to someone or to several people, in accordance with the law. Hence, a trust and an inheritance have numerous differences.

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