The heartbreak and financial crisis of divorce strikes 50% of all first marriages and 60% of all second marriages. It’s normal to be concerned about protecting your children’s inheritances from divorcing spouses. As a bonus, you can protect their inheritances from creditors and predators, as well as divorcing spouses.
The key to protecting your children’s inheritance is to pass the inheritance in a lifetime individual trust share. The trust is available for your child’s health, education, and maintenance but can’t be taken by divorcing spouse, creditors, and predators.
If you pass an inheritance outright and the assets go into your child’s individual name, he or she is likely to commingle them with the spouse so the inheritance becomes marital property; and, even if kept separate, they can be considered by the judge in property distribution during divorce.
In addition, creditors such as in a bankruptcy, malpractice claim, business failure, medical crisis, or car accident lawsuit have the opportunity to seize your child’s assets when the inheritance is in the child’s name.
Predators are unscrupulous friends, relatives, financial advisors, charities, conmen, and clergy who pounce on heirs. Your child can blow off the predator by explaining that his or her assets are all tied up in trust.
For the maximum asset protection, name an independent trustee of the trust or name your child beneficiary as a co-trustee with a professional trustee such as a CPA, trust company, or estate planning attorney. If the child serves as his or her own trustee alone, the judge may force assets out of the trust. It’s not worth the risk.
The best way to give and the best way to receive an inheritance is in a lifetime, asset-protected, individual trust share. To set this up for your children and avoid their inheritances being taken by divorcing spouses or predators, consult with a qualified estates planning attorney.