The most effective way to protect an inheritance from lawsuits in Massachusetts is to keep the assets in a properly drafted trust with a spendthrift clause rather than receiving them outright in your own name. Once an inheritance lands in your personal accounts, it is exposed to your creditors, lawsuit judgments, and a divorcing spouse. Assets held in a discretionary spendthrift trust are not yours to be taken, and creditors generally cannot reach them.
The uncomfortable truth is that most of this protection has to be built before you inherit, by the person leaving the money to you.
Why Is an Inheritance Received Outright So Exposed?
When you inherit money or property in your own name, the law treats it like any other asset you own. That means it is fair game for:
- A judgment from a car accident, a business dispute, or a professional liability claim.
- Creditors if you run into financial trouble or file for bankruptcy.
- Your spouse’s claims if your marriage ends, especially once you mix the inheritance with marital finances.
There is nothing special about “inherited” money once it is sitting in your bank account. If someone wins a lawsuit against you, they can pursue those funds the same way they would pursue your paycheck or your savings. Protection has to come from how the assets are held, not from the label on where they came from.
What Is a Spendthrift Trust, and How Does It Shield an Inheritance?
A spendthrift trust is a trust that holds a beneficiary’s inheritance and restricts their ability to transfer it, which in turn blocks the beneficiary’s creditors from reaching it. Massachusetts recognizes these under the Massachusetts Uniform Trust Code, M.G.L. c. 203E.
Here is why it works:
If your parents leave your inheritance in a discretionary spendthrift trust instead of handing it to you directly, you never own the assets outright. A trustee holds them and makes distributions for your benefit under the trust’s terms. Because you cannot demand the whole balance and cannot assign it away, a creditor who sues you generally cannot force the trustee to pay them either.
The protection is strongest when the trust is:
- Discretionary, meaning the trustee decides when and how much to distribute rather than being required to pay you a fixed amount.
- Managed by an independent trustee rather than by you alone.
- Left in trust for your lifetime rather than paid out at a set age.
The catch is timing. A spendthrift clause protects assets while they are inside the trust. The moment the trustee distributes money to you and you deposit it in your own account, that money loses the protection.
Our trust planning team drafts these trusts so the shield stays in place for as long as possible.
Can You Protect an Inheritance You Have Already Received?
If the money is already in your name, your options are narrower, but not zero. The key is to keep it isolated and layered behind other protections:
- Do not commingle it. Keep the inheritance in a separate account in your name only. Mixing it with joint or marital funds is the fastest way to expose it, especially in a divorce.
- Hold rental or investment property in an LLC. An LLC separates the property’s liabilities from your personal assets, so a tenant’s or visitor’s claim is contained.
- Carry adequate liability and umbrella insurance. Insurance is the first line of defense against most lawsuits and is far cheaper than litigation.
- Maximize protected accounts. Retirement accounts covered by federal law carry strong creditor protection, and Massachusetts protects a range of assets by statute.
These steps reduce exposure, but none of them matches the protection of never having received the assets outright in the first place.
Does Massachusetts Allow You to Protect Your Own Assets in a Trust?
Some states let you create a “self-settled” asset protection trust, put your own assets into it, remain a beneficiary, and still shield those assets from your creditors. Massachusetts is not one of those states.
In Massachusetts, if you create a trust for your own benefit and can reach the assets, your creditors generally can reach them too. You cannot simply move your money into a trust you control and benefit from and expect it to be lawsuit-proof. This is why the durable protection almost always comes from a trust that someone else creates for you, funded with someone else’s assets, such as your parents leaving your inheritance in trust rather than outright.
That distinction, third-party trust versus self-settled trust, is the single most important concept in Massachusetts inheritance protection, and it is the one most people get wrong.
How Does the Homestead Law Protect Your Home?
If part of your protection concern is your house, Massachusetts offers a powerful and often overlooked tool. Under the Massachusetts Homestead Act, M.G.L. c. 188, you can shield equity in your primary residence from many creditors.
Every homeowner gets an automatic homestead exemption of $125,000. By recording a written Declaration of Homestead at the Registry of Deeds, you increase that protection to $1,000,000 in home equity.
Enhanced protection is available for homeowners who are 62 or older or who have qualifying disabilities. Recording a homestead is inexpensive, and for many families it protects the largest asset they own. It does not, however, protect against every claim, such as certain tax liens or a mortgage on the property.
What Should You Ask the Person Leaving You an Inheritance to Do?
If you are worried about protecting a future inheritance, the most valuable conversation is with the person planning to leave it to you. Ask them to:
- Leave your share in a lifetime discretionary trust with a spendthrift clause instead of an outright gift at a certain age.
- Name an independent trustee to manage distributions, which strengthens the protection.
- Coordinate the trust with the rest of their plan, so retirement accounts and life insurance flow into or alongside the trust in a protected way.
For many families, this feels like overkill until a lawsuit, a bankruptcy, or a divorce proves otherwise. A trust that costs a modest amount to draft can protect an inheritance that took a lifetime to build.
If your concern is a child’s divorce specifically, our guide on whether an ex-spouse can reach assets through your kids walks through the same protections from the parent’s side.
Frequently Asked Questions
Is inherited money protected from lawsuits in Massachusetts?
Only if it stays in a properly structured trust. Once you receive an inheritance outright in your own name, it is exposed to creditors, judgments, and divorce claims like any other asset you own.
Can I put my own inheritance into a trust to protect it after I receive it?
Generally no. Massachusetts does not allow self-settled asset protection trusts, so a trust you create and benefit from usually will not shield the assets from your creditors. The protection must be built by the person leaving the inheritance.
What is a spendthrift clause?
It is trust language that prevents a beneficiary from transferring their interest and blocks the beneficiary’s creditors from reaching the trust assets. It protects the inheritance while it remains in the trust.
Does recording a homestead really protect my house?
Yes, to a point. A recorded Declaration of Homestead protects up to $1,000,000 of equity in your primary residence from many creditors, with the automatic exemption set at $125,000.
Take the Next Step to Shield Your Inheritance
Lawsuits, creditors, and divorce do not care where your money came from. The families whose inheritances survive those events are the ones who planned the ownership structure in advance.
Whether you are protecting a future inheritance or planning what you leave to your own children, reach out through our contact page to schedule a consultation. We help families across the North Shore and Merrimack Valley, including Andover, North Andover, Reading, North Reading, and Middleton, keep inheritances protected across generations.