A living trust is a useful tool for safeguarding your legacy and enabling the transfer of assets to a specific beneficiary. It can also protect against claims made by potential interlopers, such as a child's ex-spouse. If your son's or daughter's marriage in on rocky ground (or you question the boyfriend or girlfriend choices being made now), the last thing you want is a child's ex-spouse fighting for a share of your legacy.
Florida and most other states follow equitable distribution rules when dividing marital property. This means that assets must be distributed fairly but not necessarily equally. Also under Florida law, an inheritance is immune from division in a divorce if it is owned solely by the original beneficiary. Likewise, spouses may keep assets that they owned before the marriage. However, there is a catch regarding these funds.
An inheritance is not protected if your son or daughter commingles the funds with a spouse, such as by adding marital funds to the inherited amount, using the proceeds to purchase a jointly owned marital asset such as a car or a house, or adding a spouse to the account. Also, for example, if a child receives a check for his or her inheritance and deposits that into the marital account, the funds have now become commingled. When assets are inherited, they must be kept separate to be protected in the event of a divorce.
Parents need to discuss how to protect their children's inheritance and potential problems, advising their heirs on ways to minimize the risks. An inheritance can be excluded from marital property if the heir keeps it in a separate bank or brokerage account that's solely in the heir's name. Another way to keep inherited assets separate is if they are passed through a trust that you, as the parent, create.
Creating a living trust, also called a revocable trust, is one good way to protect your children from an ex-spouse's claim over your child's inheritance. Your living trust can include traditional probate assets, such as real estate, bank and investment accounts, collectibles, and other personal property. Your trust can also be designed to receive non-probate assets such as retirement accounts* and life insurance proceeds by using separate beneficiary designation forms. The trust proceeds then pass outside of the probate process. Thus, instead of being distributed directly by the personal representative (often as would be overseen by a court), trust proceeds can be held in trust for the benefit of one or more named beneficiaries.
Passing your estate through a trust can help your children keep these assets separate. Either you or your children, especially once they reach a specified age, can determine when money comes out of the trust. This way, the assets are kept separate; the risks of your child commingling his inheritance with marital assets can be greatly reduced.
Protecting your legacy from a child's ex-spouse requires forethought and proper planning, and a well-drafted trust can help. If you're ready to create an estate plan or a living trust, contact an estate planning attorney to arrange an appointment. Meeting with an estate planning attorney doesn't have to be stressful. One should take time to address your goals and concerns and work to create a plan that's appropriate for your situation.
*Qualified retirement accounts can be even further protected using a Standalone Retirement Trust.
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