1. Review the Trust Document

Start by obtaining the trust document and any amendments. If you are a beneficiary, you may be entitled to receive information about the trust, although the specific requirements depend on the governing law and circumstances.

The document explains how the trust operates, who is responsible for managing it, and what rights beneficiaries have. It may also establish when distributions can be made and whether the trustee has discretion over those decisions.

Pay particular attention to:

• The type of trust: Is it revocable, irrevocable, or a trust created under a will?
• The beneficiaries: Who is entitled to receive income or principal?
• Distribution provisions: When and under what conditions can assets be distributed?
• Trustee authority: What decisions can the trustee make independently?
• Termination provisions: Does the trust end at a particular age, date, or event?
• Restrictions: Are there limits on how distributions can be used or when they can be received?

Some trusts require mandatory distributions of income, while others allow the trustee to distribute income or principal at their discretion. Certain trusts are intended to continue for many years, even across multiple generations.

2. Understand Who Controls the Assets

Being named as a trust beneficiary does not automatically mean you own or control the investments inside the trust.

In many cases, the trustee is responsible for managing the trust's assets, maintaining records, filing required tax returns, and making distributions according to the trust document. The beneficiary receives the benefits allowed under the document but may not have authority to direct every investment or withdraw the principal.

There are several common arrangements:

• Immediate distribution: Assets are distributed to you outright, giving you direct ownership and control.
• Continuing trust: Assets remain in the trust, with the trustee managing them for your benefit.
• Age-based distribution: The trust distributes some or all assets when you reach a specified age.
• Discretionary distribution: The trustee determines whether distributions are appropriate under the trust's terms.

This distinction affects how you approach investment management, spending, taxes, and long-term planning. Before making financial decisions, establish whether you have received the assets personally or whether they remain inside a trust.

3. Understand How Trust Distributions Are Taxed

One of the most important questions after inheriting a trust is whether distributions create taxable income. The answer depends on the type of trust, the character of the income, and how the trust reports its activity.

A beneficiary may receive a Schedule K-1 from the trust. This form reports certain items of income, deductions, and credits that may need to be included on the beneficiary's individual tax return.

For many non-grantor trusts, distributable net income, commonly called DNI, determines how much taxable income can pass through to beneficiaries. The tax character of the income generally carries through to the beneficiary. Interest, dividends, and other income may be treated differently from principal distributions.

Ask the trustee or tax preparer for:

• The trust's most recent Form 1041, if applicable
• Your Schedule K-1, if one is issued
• A breakdown of income and principal distributions
• Information about estimated tax payments or tax withholding
• Details about any income retained by the trust

Trust tax brackets can also be compressed compared with individual tax brackets. Depending on the amount and type of income, retaining income inside a trust can produce a different tax result from distributing it to beneficiaries.

A CPA or qualified tax professional should review the trust's tax reporting before you make assumptions about how much of a distribution you can spend.

4. Review the Investments Held in the Trust

A trust may hold a portfolio of stocks, bonds, mutual funds, ETFs, cash, real estate, or other assets. The investment strategy may have been established years ago and may reflect the needs of the original grantor rather than your current financial circumstances.

If the assets remain in the trust, the trustee generally has responsibility for investment decisions, subject to the trust document and applicable law. If assets have been distributed to you, you can evaluate how they fit into your own investment strategy.

Review the following:

• Asset allocation: How much is invested in stocks, bonds, cash, and other assets?
• Concentration: Does the trust hold a large position in one company, sector, or investment?
• Liquidity: Are assets readily available for distributions or expenses?
• Investment expenses: What are the fund expenses, advisory fees, and other costs?
• Risk: Does the portfolio match the trust's purpose and beneficiaries' needs?
• Tax considerations: Would selling appreciated investments create tax consequences for the trust?

Do not assume that every inherited investment should be sold immediately. A large sale can create tax consequences, and some assets may be appropriate to retain depending on the trust's objectives and your overall financial situation.

5. Understand Cost Basis and Inherited Assets

Cost basis is important when inherited assets are sold because it generally determines the taxable gain or loss.

Some assets transferred at death may receive a basis adjustment under federal tax rules. However, a trust's structure and ownership arrangements can affect whether an adjustment applies. Assets held in certain irrevocable trusts, for example, may not receive the same treatment as assets included in a decedent's taxable estate.

This is particularly important when a trust holds highly appreciated investments, real estate, or concentrated stock positions.

Request documentation showing the basis of the assets, the date-of-death valuation if relevant, and any basis adjustments made. Have the CPA review the records before selling investments or transferring assets.

6. Decide Whether to Take Distributions or Leave Assets in the Trust

If the trust allows distributions, you may need to decide whether to receive assets now or leave them invested inside the trust.

There is no universal answer. The right decision depends on the trust's provisions, tax treatment, investment options, fees, creditor protections, estate planning considerations, and your personal financial needs.

Before requesting a distribution, understand whether receiving the assets changes creditor protection, estate planning treatment, or tax reporting. These issues are particularly important for beneficiaries receiving substantial amounts.

7. Include the Inheritance in Your Financial Plan

An inheritance can change your financial picture significantly. It may affect your retirement timeline, investment allocation, charitable giving, tax planning, estate plan, and the amount of financial risk you need to take.

Rather than treating the inheritance as a separate account, consider how it fits alongside your existing assets and obligations.

Important planning questions include:

• Does the inheritance change when you can retire?
• Should your investment allocation change now that you have additional assets?
• Do you have concentrated investments that need to be reviewed?
• How will trust income or distributions affect your tax situation?
• Should you revise your own estate plan or beneficiary designations?
• Would charitable giving or gifts to family members become part of your plans?
• How should the inherited assets be coordinated with retirement accounts and other investments?

For affluent households, the inheritance may also add complexity across multiple financial institutions, investment accounts, family relationships, and estate planning documents. Coordinating those pieces can help avoid decisions that work individually but conflict with the broader plan.

8. Understand the Trustee's Role

The trustee has responsibilities established by the trust document and applicable law. These may include managing assets prudently, keeping records, providing required information to beneficiaries, filing tax returns, and making distributions in accordance with the trust's terms.

If you have questions about the trust's investments, expenses, distributions, or administration, ask the trustee for an explanation and supporting documentation.

You may also want to understand whether the trustee is an individual, a professional fiduciary, or a corporate trust department. Each arrangement can involve different services, administrative processes, and costs.

If you have concerns about the trustee's actions or believe the trust document is not being followed, speak with an estate planning attorney who can review your rights and the trustee's obligations.

9. Avoid Rushed Decisions

Receiving an inheritance can create pressure to make immediate decisions. You may have family members offering suggestions, investment opportunities being presented, or expenses you have been considering for years.

Unless there is a genuine deadline, give yourself time to understand the assets and the terms of the trust before making major changes.

Common mistakes include:

• Selling investments before understanding their tax basis
• Assuming all trust distributions are tax-free
• Confusing beneficiary status with ownership of trust assets
• Taking distributions without considering creditor protection or estate planning
• Making large purchases before understanding the long-term financial impact
• Overlooking investment expenses or administrative fees
• Failing to coordinate the inheritance with existing investments and retirement plans

A measured approach gives you time to review the trust, understand the tax consequences, and decide how the inheritance should support your longer-term financial priorities.

Managing Inherited Investments at Charles Schwab

If trust assets are distributed to you, or you establish an eligible investment account to manage inherited assets, the financial institution holding the investments is another consideration.

Independent Wealth Management. Investments at Schwab.

Inclinevest Wealth Management is an independent registered investment advisory firm. Client investment accounts are held at Charles Schwab, which provides custody and account services.

This arrangement provides access to an established investment custody platform while allowing investment recommendations to be made independently of a proprietary product lineup.

Learn more about Inclinevest's financial planning and investment management services.

Frequently Asked Questions About Inheriting a Trust

About the Author

Gabriel Motta, CFP®, MBA, AWMA™

Founder & Wealth Advisor, Inclinevest Wealth Management

Gabriel Motta founded Inclinevest Wealth Management and has worked in financial services since 2004. His background includes wealth planning at UBS Financial Services and leadership roles at U.S. Bank, BBVA, and other financial institutions.

At UBS, he completed hundreds of financial plans for high-net-worth and ultra-high-net-worth households. Today, he works with professionals, executives, business owners, retirees, and families on financial planning and investment management.

Gabriel holds the CERTIFIED FINANCIAL PLANNER™ certification, an MBA, and the Accredited Wealth Management Advisor™ designation.

Read Gabriel's full biography or learn more about Inclinevest's services and fees.

Disclosure: This article is for general educational purposes only and should not be considered individualized investment, tax, or legal advice. Trust provisions, beneficiary rights, distribution rules, and tax treatment depend on the specific trust document, applicable state law, and individual circumstances. Consult your estate planning attorney and qualified tax professional before making decisions involving trust assets. Investment advisory services involve risk, including the possible loss of principal. Inclinevest Wealth Management is an independent, fee-only registered investment advisory firm. Advisory services are provided in accordance with applicable agreements and disclosures.