| |
The Benefits of a Living Trust, Part 2: Protection
from a Bad Marriage
May 2011
During a recent estate planning consultation, a concerned parent posed this
question: “My son is in a bad marriage. What happens if, after we die, he gets
divorced? Will his ex-wife gets some of our estate?”
This is not an uncommon question; fortunately, it has a simple answer. The
concerns expressed by our client can be solved by sharing one of the major (and
often overlooked) benefits of using a living trust: asset protection for the
beneficiaries.
“Traditional” Living Trust Planning. As we discuss in greater detail in
part one of this series (see link above), the most common benefit of the living trust is to
avoid the time delay and reduce the legal fees of after-death probate
proceedings. The time and dollar savings are significant – enough to justify,
for most people with even modest assets, the creation of a trust.
Unfortunately for many well-intentioned people, this is where most of the “off
the shelf” estate plans (i.e., canned products that you can download from the
Internet or buy at an office supply store) come to a premature halt. A generic
estate plan may effectively avoid probate (assuming that ownership of one’s
assets are properly conveyed into the trust), but because those on-screen
documents can’t properly assess what is going on in your family and in your
life, they deprive you of the kind of personalized planning and problem
avoidance that can only be achieved in a meeting with a flesh-and-blood estate
planning attorney.
Protection from a Bad Marriage. Ensuring that your assets won’t end up being
owned by an adult child’s ex-spouse is an often overlooked benefit of a living
trust. If drafted properly, a living trust can provide divorce protection to the
after-death beneficiaries.
In our case, Mom and Dad were worried that their child is in a bad marriage, and
they don’t want assets that took a lifetime to build to go to his future
ex-wife. Their son is trying to make it work, but it looks rocky. Mom and Dad
are losing sleep. What can they do?
We recommended structuring their living trust so that, when they die, their
assets stay in their trust, and, as both the trustee and the beneficiary, their
son will have control of the assets. Thus, he enjoys the benefit of his
inheritance without actually taking ownership of it. He can receive the income
and, if necessary, the principal, but if he gets divorced, his ex-wife can’t put
a claim on his inheritance.
The “After-Death Pre-Nuptial.” This concept is pretty powerful. The ability to
not only transfer wealth but do so in a manner that protects assets for the next
generation is a strategy that most families should strongly explore in their
planning.
The use of the living trust in this example allows Mom and Dad to sleep better
at night. They can provide their son with his inheritance and know that their
living trust is providing the legal effectiveness of a pre-nuptial in that rocky
marriage.
You might be asking, “All of our kids have great marriages. Is this strategy
still relevant?” Yes: Relationships change; they can quickly go from good to
bad, and you can feel secure in knowing that you have helped protect your
children and your assets.
Adapted from the Daily Plan-It newsletter. Hoopes,
Adams & Alexander, PLC, is a Chandler, Arizona, law firm offering services to
Phoenix-area clients in the areas of estate planning, entity formation,
commercial and real estate transactions, and civil litigation. |
|
