A frequently question people have when updating their wills with an experienced estate planning attorney, is whether they still need a trust for an adult child. The child has graduated college, is on her second well-paying job, is married and has children of her own. The child is a responsible young adult. However, an issue may arise with the adult child’s spouse and the potential for divorce.
Kiplinger’s recent article entitled “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer” says that people do not want money they have worked hard for to be directed to their son’s or daughter’s ex-spouse, if a divorce occurs.
The larger question is how well we think our children will handle receiving a large sum of money. Some parents want a trust because they worry about their adult child losing thousands of dollars of their inheritance as a result of a failed marriage. By creating a trust as part of their estate plan, these parents can help protect their child’s assets in a divorce settlement.
In many situations, if a child receives an inheritance and combines it with assets they own jointly with their spouse, like a bank account, car or house, depending on where they live, the inheritance may become subject to marital property division, if the adult child and spouse later divorce. However, if the child’s inheritance is in a trust account, or they use trust funds to pay for assets only in their name, the inherited wealth can further be protected from a divorce.
Trusts can be complicated and require more administrative work and costs, which may cost more than just leaving assets outright to your children. This is worth it for those who want to protect their child’s wealth. If your child is under 18, you’re not thinking about divorce, but because of their youth, leaving assets in trust for them is often a good idea. A trustee will oversee the child’s assets and will be able to guide them to make sound decisions with any inherited funds. If your child is newly married, rather than creating a trust right after your child’s marriage, see how the marriage goes over the next five to 10 years. Then ask yourself how comfortable you are with your child’s relationship and how you feel about your son-in-law or daughter-in-law.
Consider your estate plan as a five-year plan. Review your will, trust and other estate planning documents every five years. This can help you carefully evaluate relationships, finances and the emotional dynamics of your family. An experienced estate planning attorney can also adjust or cancel the trust during your life, as your family situation changes.
Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”