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How to Get My Inheritance Early?

Can I get my inheritance early? That depends…on how nice you are to your parents. Generally speaking, the only way to obtain your inheritance early is for a parent to give that to you before they pass. But there are times when a parent dies and their assets are held in Trust to benefit a surviving spouse. That can be a painful realization, especially where the surviving spouse is not your parent, but rather a step-parent of yours.

 

This is commonly done in estate planning. Upon the death of one spouse, the Trust assets are divided into a Survivor’s Trust and a Bypass Trust (these Trusts come by many different names, but these two names are most commonly used). The survivor’s Trust represents the surviving spouse’s share of the Trust assets—their one-half of the community property, plus all of the separate property. The Bypass Trust represents the deceased spouse’s share of the Trust estate.

The survivor’s Trust is usually revocable—meaning the survivor can change or modify that Trust any way they like. The Bypass Trust is usually irrevocable—meaning it cannot be modified or changed. The Bypass Trust will usually provide for distributions to the surviving spouse to the extent the survivor needs money for their health and support. Upon the death of the survivor, the Bypass Trust assets usually pass to the children of the deceased spouse.

The problem arises when the surviving spouse (who is typically named as Trustee of the Bypass Trust) fails to follow the Trust terms. Either the Bypass Trust is never created, it is not properly funded, or distributions are made for reasons that are not specified in the Trust document. And there are many times when the children of the deceased spouse and the surviving step-parent don’t get along.

While there is no absolute legal right for children to receive their inheritance early in this situation, there are ways in which to work with the surviving spouse to obtain an early inheritance. If the surviving spouse and all the children agree, then an early Trust termination can take place to the children.

Alternatively, if the Trustee of the Bypass Trust is not properly following the Trust terms, then the children can take action in court to fix those problems. The children can seek a court order to create the Bypass Trust, ensure it is properly funded, audit the Trust distributions to ensure inappropriate distributions are not being made. At times, these actions are sufficient to “convince” the surviving spouse to negotiate an early distribution of the Bypass Trust asserts.

The bottom line: there is no legal right to an “early” inheritance, but with the right set of facts, we have helped many clients obtain an early inheritance. It can be done with a bit of finesse.