How to Protect Your Inheritance

Receiving an inheritance can be life-changing, but without the right protections in place, it can also lead to financial missteps, tax burdens, or even legal disputes. Whether you are planning to leave an inheritance for your loved ones or you are receiving one yourself, working with an attorney for estate planning in Tyler, TX can help safeguard these assets for the future.

Why Do Inheritances Need Protection?

Many people assume that once they receive an inheritance, it’s theirs to keep without worry. However, inheritances can be lost due to poor financial management, taxes, divorce, creditors, or even legal challenges from other family members. Taking the right steps early to protect your heirs' inheritance can help preserve these assets for the long term.

Steps to Protect an Inheritance

1. Understand the Type of Inheritance You’re Receiving

Different types of inheritances come with unique rules and tax implications. For example:

• Cash inheritances are generally straightforward, but large sums may be subject to estate or inheritance taxes depending on state laws.
• Retirement accounts (IRAs, 401(k)s) may require required minimum distributions (RMDs), which can have tax consequences.
• Investment accounts and real estate receive a "step-up" in cost basis, which can help reduce capital gains taxes if sold.
• Life insurance proceeds are typically tax-free but may be included in the overall estate for tax purposes.

Understanding what you’re inheriting can help you make smart financial decisions.

2. Use a Trust to Protect the Inheritance

If you are planning to leave an inheritance, setting up a trust can provide significant protection. A trust can:

• Prevent heirs from spending their inheritance too quickly.
• Shield assets from creditors, lawsuits, or divorce settlements.
• Provide ongoing financial support over time instead of a lump sum.
• Minimize tax burdens for beneficiaries.

An experienced estate planning attorney in Tyler, TX can help you set up the right type of trust to protect your family’s financial future. Read more in our article, How to Transfer Property After Death: A Guide to Protecting Your Legacy

3. Keep Inherited Assets Separate

If you receive an inheritance, avoid mixing it with marital assets. Once an inheritance is deposited into a joint bank account or used to buy shared property, it may be considered marital property and could be subject to division in a divorce. Keeping inherited funds in a separate account in your name can help maintain legal ownership.

4. Be Mindful of Taxes and Legal Obligations

While federal estate taxes only apply to very large estates, some states have inheritance or estate taxes. Additionally:

• Selling inherited assets may result in capital gains taxes.
• Withdrawals from inherited retirement accounts may be subject to income taxes and must follow strict distribution rules.
• Some inherited assets may have debts or liabilities attached, such as property taxes or mortgages.

Consulting with an estate planning attorney in Tyler, TX can help you navigate these tax and legal considerations.

5. Make Smart Financial Decisions

Many people overestimate how long an inheritance will last. A sudden financial windfall can be tempting to spend quickly, but thoughtful planning is essential. Consider:

• Paying off high-interest debt.
• Investing in a diversified portfolio for long-term growth.
• Setting aside funds for emergencies or future expenses.

Working with a financial advisor in addition to an estate planning attorney can help ensure your inheritance lasts.

Secure Your Inheritance with an Estate Planning Attorney

Whether you are planning to leave an inheritance or protect one you’ve received, taking the right steps can make all the difference. At Campbell Law Firm, we help individuals and families safeguard their assets through comprehensive estate planning strategies.

If you need guidance on protecting an inheritance, book a consultation with our Tyler estate planning team today.

References: Madison Daily Leader (Nov. 23, 2024) “Are your heirs ready to receive an inheritance?” and Kiplinger (Jan. 24, 2025) “Manage an Inheritance Like a Pro in Just Seven Steps”