The Importance of Protecting Inherited Assets Through a Sub-Trust

By Mike Massey Law — Texas TRUST AND ESTATE PLANNING ATTORNEYS

Introduction: A Common Oversight in Estate Planning

Many parents and grandparents work hard to leave behind a meaningful legacy — a home, savings, or investments intended to give their loved ones security and opportunity. Yet, one of the most common mistakes in estate planning is leaving those assets outright to beneficiaries.

When inherited assets go directly to a beneficiary’s name, they can be immediately exposed to life’s risks: creditors, divorce, lawsuits, addiction, or financial mismanagement. Fortunately, there’s a powerful legal tool that can protect your legacy — the sub-trust, sometimes called a “beneficiary-controlled trust” or “inherited asset protection trust.”

What Is a Sub-Trust?

A sub-trust is a trust created within your revocable living trust that takes effect upon your passing. Instead of distributing assets directly to your beneficiary (like your child), the assets stay in the sub-trust for that beneficiary’s benefit.

This means your loved one can still benefit from the assets — they can use the funds for health, education, housing, and other approved purposes — but the money is legally insulated from outside threats.

It’s one of the most effective ways to ensure that what you leave behind is used for your loved one’s long-term security, not lost to an unexpected problem.

Why Inherited Assets Are Vulnerable Without a Sub-Trust

Here are the main threats to inherited wealth when assets are distributed outright:

1. Addiction or Poor Spending Habits

If a beneficiary struggles with addiction or impulsive financial behavior, an outright inheritance can do more harm than good. A sub-trust allows you to control distributions, often through a trusted trustee or set of clear rules, so funds can be used responsibly and sustainably.

2. Predators and Opportunists

Sadly, sudden inheritances can attract unwanted attention. Unscrupulous friends, romantic partners, or even caregivers can pressure or manipulate a beneficiary. With a sub-trust, assets remain protected — the trust, not the beneficiary, legally owns the funds, making them harder for bad actors to access.

3. Creditors and Lawsuits

If your beneficiary ever faces a lawsuit, bankruptcy, or business failure, an outright inheritance can be seized by creditors. A properly structured sub-trust acts as a legal shield, keeping assets out of reach of most creditors.

4. Divorce or Failed Marriages

Inheritance is often intended to stay within the family — but if your child later divorces, their inheritance can be divided or claimed by an ex-spouse. A sub-trust preserves the assets as separate property, helping ensure your legacy stays with your bloodline.

The Protective Power of a Sub-Trust

A well-drafted sub-trust can provide several key benefits:

• Long-term protection: The assets remain protected for the beneficiary’s lifetime.
• Flexible access: The trustee can make distributions as needed, and in some cases, the beneficiary can even serve as co-trustee under certain safeguards.
• Preserves eligibility for benefits: For beneficiaries with disabilities, a sub-trust can be structured to preserve government benefits while still providing financial support.
• Legacy continuity: Upon the beneficiary’s death, remaining assets can pass to your grandchildren — ensuring multi-generational protection.

How Sub-Trusts Fit Into a Comprehensive Estate Plan

At Mike Massey Law, we typically build sub-trusts within a client’s revocable living trust. This allows for smooth administration, privacy, and the ability to adapt to your family’s unique needs.

For example:

• If your daughter is financially savvy and stable, her sub-trust can give her more control.
• If your son struggles with addiction or impulsive spending, his sub-trust can require trustee approval for distributions.
• If a child is married, their sub-trust can ensure inherited funds remain separate and protected from divorce claims.

Every sub-trust is customized — the goal is to balance protection with flexibility.

Hypothetical Example

Imagine a parent leaves $500,000 to their son outright. Within a few years, he divorces, and his ex-spouse claims half of it in the settlement. Or, he faces a business lawsuit, and creditors attach liens to his assets.

Now imagine that same inheritance placed in a sub-trust. The son still benefits from the income and principal as needed — but legally, it’s not his personal property. The assets remain beyond the reach of ex-spouses, creditors, or impulsive decisions.

That’s the difference between hoping your legacy lasts and ensuring it does.

Conclusion: Protecting Your Legacy the Smart Way

You’ve worked hard to build something worth leaving behind. But true legacy planning is about more than passing wealth — it’s about protecting your loved ones from life’s uncertainties.

A sub-trust gives you peace of mind that your beneficiaries will be supported — not exposed — after you’re gone.

At Mike Massey Law, we help Texas families design customized estate plans with built-in asset protection, including sub-trusts that reflect your family’s values, dynamics, and long-term vision.

Ready to Protect Your Family’s Future?

Contact Mike Massey Law today to schedule your free estate planning consultation and learn how sub-trusts can safeguard your legacy.

📞 Call: (512) 407-2407
🌐 Visit: www.MyTXWills.com