By: The American Academy of Estate Planning Attorneys
The financial consequences of a divorce can be costly. You can do things right now to protect future generations in your family from suffering financial devastation after a breakup.
Parents dream many dreams for their children. These dreams often incorporate hopes that their kids will get a good education, embrace fulfilling careers, keep their good health, and find happy, stable marriages. Sometimes reality can play out more like a nightmare in this last instance, however, as more and more marriages end in divorce.
Even when our children have grown into the independent adults we have encouraged them to be, we still want to shield them from the worst nightmares of real life. The loss of family wealth through a divorce settlement is a trauma that can be mitigated, or avoided altogether, through the use of a Divorce Protection Trust. When you leave your assets to your heirs using this type of Trust, that inheritance is not distributed outright, but the funds can still be used at your heirs’ own discretion. Since it is held in trust, the inheritance does not become marital or community property; therefore, in most states, no part of the inheritance is lost in a divorce.
You can also protect your children from the financial consequences of your spouse remarrying after your death. By sheltering the maximum amount that may be left free of estate tax for the benefit of your spouse and/or children in a Family Trust, rather than distributing assets outright, you can provide access to both principal and income for their needs. The assets in the Family Trust will be free of estate tax at your spouse’s death. A Marital Trust can also be set up to receive assets in excess of the maximum allowable funding of the Family Trust. You decide if your spouse can access the principal of the Marital Trust for specific purposes, or if they are entitled to income only. In either case, the remainder of the Marital Trust will ultimately reach your own children and will not be available to the new partner of your surviving spouse or that partner’s family.
While you can’t ensure that your children’s lives are nightmare-free, through thoughtful estate planning, you can ensure that your heirs have the comfort of the inheritance you intend for them. An experienced estate planning attorney can help protect your kids from the financial consequences of divorce and remarriage.