Trusts as a means of avoiding paying estate taxes are not as necessary as they once were. However, they have a number of other functions that have become attractive to concerned parents. When children marry and then divorce, a trust may protect an inheritance from a divorce settlement. A recent Kiplinger’s article, “A Trust Can Protect Your Adult Child’s Assets from a Failed Marriage, takes a look at how this works.
It’s not uncommon for a child to get an inheritance and combine it with assets he or she owns jointly with their spouse, like a bank account, car or house. Depending on the state in which they reside, the inheritance may become marital property subject to division in the event of a divorce. If the child’s inheritance stays in a trust account, the inherited wealth may be shielded from a divorce.
A trust is an excellent way to protect their child’s wealth. Consider the following alternatives regarding the parents’ decision to leave assets in trust for their children:
- Children under age 18. If your child is under 18, you’re probably not considering his or her marriage or divorce. However, leaving assets in trust for a child may be a good plan. This is because a trustee will be there to help by overseeing the child’s assets and guiding them in their decision-making with the funds. The trustee can also deny any financial requests. This is a valuable power if a child is immature, easily influenced or at risk for alcohol or substance abuse.
- A newly married child. After the honeymoon, the journey can get bumpy as life becomes more stressful and complex. Children may have to deal with issues like a job layoff, health issues, financial worries or the stress of rearing their own kids. When properly drafted, creating a trust for your child may protect those assets from not only divorce, but also bankruptcy and other creditors.
- Marriage status. You can always take a beat to determine your comfort level with your child’s relationship and how you feel about your son- or daughter-in-law. If you see acrimony or you just have a “gut feeling” about the union’s future, it may be smart to create a trust for your child’s inheritance.
You should review your estate plan regularly, since your estate plan will need to be reviewed for changing family circumstances and changing assets as well as changes in the law. You’re not required to make any changes, but a review with your estate planning attorney will ensure that your always-evolving goals will be achieved and your legacy will be protected—and that you won’t miss any planning opportunities!
When whether the changes are major, such as a child’s divorce, or minor, such as a new job and accounting for a new retirement account, you will certainly want to meet regularly with your estate planning attorney to make any necessary changes. Working with an estate planning attorney with a client care program (like Family Estate Planning Law Group’s) allows you to work together on an ongoing basis to address changes in your life and the law as they occur and ensure your estate plan will take care of your family the way you intend.
For more information on the importance of working with your estate planning attorney on an ongoing basis, explore our website and contact us to schedule your consultation today!
Reference: Kiplinger (March 2017) “A Trust Can Protect Your Adult Child’s Assets from a Failed Marriage”