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Your Child’s Failed Marriage and Your Money

TrustMore people than ever before are considering a trust-based estate plan. Let’s look at just one of the many reasons a trust might be the better plan.

One of the reasons could be because they’re concerned about their adult child losing their inheritance due to a failed marriage. When you establish a trust as part of a will or revocable living trust, you can help protect your child’s inheritance in a divorce settlement.

It’s not uncommon for a child to get an inheritance and to combine it with assets he or she owns jointly with their spouse, like a bank account, car or house. Depending upon the state in where 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 can be shielded from a divorce. Some people will leave their children’s inheritance in a trust after a first divorce, because of concerns that their hard-earned dollars might end up in the wrong pockets if he or she remarries. If a child marries again and it doesn’t work, the second ex-spouse will not get those trust assets.

While it might seem that outright distribution seems easy, many people recognize the value of protecting their child’s inherited 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 oversee the child’s assets and guide 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 or easily influenced.

A newly married child. After the honeymoon, the journey can get bumpy as life becomes more stressful and complex. They may have to deal with issues such as a job layoff, health issues, financial worries or the stress of rearing children. Rather than creating a trust soon after your child’s marriage, see how the marriage progresses over the next few years.

Marriage status. As mentioned above, after five years or more, you should 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 look at estate plans as five-year plans, and review your will, trusts and other documents at least that often. You may not need to change them, but a periodic review can help you carefully evaluate relationships, finances and the emotional dynamics of your family.  Trust reviews with my firm are always complimentary.  Call to book your consultation today at 757.259.0707 or ‘request a consultation’ online.

Reference: Kiplinger (March 2017) “A Trust Can Protect Your Adult Child’s Assets from a Failed Marriage”

 

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