Every family should have a unique estate plan because every family is unique. Each farm deserves special attention as the present generation considers the best way to pass it on to the next. But there is one aspect of planning that seems to have almost universal appeal when understood, and that is leaving the assets to heirs “in trust” instead of “outright.”

This is not about planning with a living trust rather than a will. We are talking about a legal plan that says, “After I die, a trust is established for each heir to hold his or her share of the inheritance.” These provisions could be written in your living trust or in your will.

Think of this as creating an heir’s trust for each beneficiary. The terms of the heir’s trust are written while you are living, but take effect only when your estate passes from you, typically upon your death. There is no standard form for an heir’s trust, but rather a wide spectrum of possibilities.

Point of the trust

The most common objective of the heir’s trust is to protect the inheritance from major life risks: A catastrophic liability event such as an accident resulting in a lawsuit is the first that comes to mind. A close second would be the risk of loss to a failed marriage. A fear for some is health needs late in life, and nursing home costs eating up the assets that were inherited. As the estate passes on your death into the heir’s trust, these protections go into effect.

Who controls the heir’s trust? After all, doesn’t a trust tie things up? No. You can give the beneficiary very broad control. The responsible beneficiary can invest as they choose and spend whatever they need. They can operate the business, farm the land, borrow and grow, liquidate appropriate assets, and reinvest the proceeds. That can all take place within the heir’s trust, so all the value you gave them — and whatever they manage, grow or reinvest it to become — remains protected from life risks. The heir’s trust usually reduces income taxes. The beneficiary can be left free to spend not only the income from the heir’s trust, but also the proceeds of assets sold.

Another benefit that can be achieved by the heir’s trust is shielding the family assets from repeated estate taxation. Some people assume this means your children get only income, after which the property must pass on to their children. You could tie things up like that, but your responsible child deserves more freedom. Let the child spend from the property if they need to, and let them decide the best way to pass the inheritance to their children. The heir’s trust can allow that while still assuring that the assets will not be included in your child’s taxable estate.

More freedom, not less

Overall, receiving an inheritance in a beneficiary-controlled heir’s trust gives the beneficiary greater freedom than receiving it outright. In trust, they incur lower income taxes, and operate free from major life risks and estate taxation when they die. That same inheritance outside of such a trust would leave everything exposed to the life risks and estate taxes.

But that is not the only way to design an heir’s trust. Maybe you don’t think a beneficiary is capable of wisely managing their inheritance. Their heir’s trust should be written to suit that situation. Very specific, limited restrictions might be included, or you might need to go all the way and protect the beneficiary from himself or herself.

Specific restrictions? If “they could even sell the farmland” strikes fear into your heart, include any restrictions you think appropriate in the heir’s trust. You might say the farm cannot be sold for at least a generation or two. Maybe sale to other beneficiaries is permitted, but sale to outsiders is prohibited or discouraged.

Some beneficiaries should have no direct control. An heir’s trust for a minor beneficiary will appoint mature trustees to manage everything at least until the beneficiary grows up. An heir’s trust for a disabled adult will be managed by others to preserve the value and assure the maximum outside resources remain available for that adult. If a beneficiary struggles with substance abuse, someone else should be trustee of their heir’s trust, and you could include incentive clauses to help encourage them along a healthier path.

If you want to do all the good you can for your farm and family, plan to create an appropriate heir’s trust for each of your beneficiaries.

Ferguson is an attorney who owns The Estate Planning Center in Salem, Ill. Learn more at thefarmersestateplanningattorneys.com.