Interested in Understanding Other Distribution Techniques that Leave Assets to One’s Children and Loved Ones?


Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Estate Planning Attorney

Many individuals, including parents, good friends and  family members want to leave their assets to their children, spouse, partner and other loved ones.  Some of their strategies are well-intentioned but fail miserably at achieving their stated goals which is to protect inheritance(s) from creditors, predators, in-laws and the IRS.  Here are some examples of their thinking.

  1. Outright Distribution – This technique allows for the automatic distribution of your assets to your beneficiary upon the death of the second parent. It is a technique commonly used in a will or trust. This method offers zero asset protection. Once the assets are distributed, they are included in your children’s estate, making them subject to creditors, ex-spouses, and other interested parties. In New Jersey, once these assets are distributed it is too late for your children to create a trust to protect these assets.
  2. Irrevocable Mandatory Income & Support Trusts – This trust involves establishing a trust for the support of a beneficiary. An independent trustee (not related to the creator of the trust) is appointed and directed to distribute trust income for the health, education, maintenance, and support of the beneficiary. These trusts provide support for the beneficiary throughout their life and protect your assets until they are distributed. However, mandatory distributions are not protected from creditors. This means that if your child has a right to income based on the language in the trust, your child’s creditors may assert a claim to those funds, leaving your assets vulnerable.
  3. Staggered Distributions From An Irrevocable Trust – This method involves appointing an independent trustee to distribute your assets according to a timeline established by you. You create the trust and name and independent trustee. However, instead of giving the trustee discretion to give the funds to the child when they believe necessary or when the child needs it for support, health, education, or other reasons, this type of trust involves strict instructions requiring the trustee to distribute the funds as indicated by you. This means that if you indicate in your trust that your child shall receive $50,000 upon graduation from college, your children’s’ creditors may assert a claim to that money once they graduate from college, since the beneficiary is entitled to that money.

Use of an Irrevocable Discretionary Trust is a favored technique because it protects your assets before they are distributed. It provides safeguards and a firewall against creditors and others while also allowing your beneficiary to receive the benefits of your assets without technically “owning” them. This trust has become an increasingly popular tool used by many individuals today in their estate planning to ensure their assets go to who they intend them to.

Are There Disadvantages to Using An Irrevocable Discretionary Trust?

Almost every strategy and trust has some limitations. But they are often manageable. It is important to be aware of the downsides of an Irrevocable Discretionary Trust, no matter how insignificant, when debating whether to create such a trust. Since an Irrevocable Discretionary Trust protects assets from creditor claims as long as they remain in trust, one downside is that if the assets are distributed to the beneficiary, they then are considered part of their beneficiary’s estate and subject to claims. However, this is the case with all trusts, not just the Irrevocable Discretionary Trusts. Furthermore, if the assets are passed to a separate trust in which the child is the sole trustee, the child must be careful not to resign as trustee unless an independent trustee is in place. Such action will subject the assets to vulnerability of claims. Finally, one must always be aware of fees associated with trusts, taxes, and strict compliance requirements.

Fredrick P. Niemann Esq.

Fredrick P. Niemann Esq.

Creating an Irrevocable Discretionary Trust often makes sense. It is a vehicle to ensure a loved one receives your assets. It is important you consult with a knowledgeable New Jersey Estate Planning attorney to assist you in establishing such a trust, as there are many specific guidelines that must be followed.

Please call Fredrick P. Niemann, an experienced NJ Estate Planning Attorney, today toll-free at (855) 376-5291 or email him at He would be happy to help guide you through the process and answer any questions you may have. He looks forward to hearing from you.



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