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Your Estate Matters
Judith Sterling and Michelle Tucker
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How to protect inherited assets in the event of divorce
YOU DEARLY love your children. You care for them and watch over them when they are little. When they are older and they leave home, you wonder how they are doing. You are there for them if they hit a rough spot in life. You may help them purchase that first home.
Parents seem to never stop being parents.
One of the fears that parents have is that a child will enter into a marriage that ends in divorce. The heartbreak when this happens is compounded when your child's property ends up in the hands of the prior spouse. Approximately half of all marriages in the United States end in divorce.
Your children or your children's children could some day be a party to a divorce.
If you leave your children an inheritance, can you protect it in the event of a divorce?
You can if you leave inherited assets in a "divorce protection" trust. This type of trust will keep your child's inherited assets segregated from the child's marital property, and can be designed so your child can still control, manage, invest and distribute the trust's assets.
Even if the child is not the trustee, he or she can have the power to distribute money from the trust.
Additionally, you can protect your children's inheritance in case you have divorced and remarried someone who is not a parent of your children. Instead of leaving everything you own outright to your spouse when you die, you can leave your assets in trust for the benefit of your spouse -- and provide for the remainder to be distributed to your children when your spouse dies -- or in trust for the benefit of each of your children. In 2007, you can leave up to $2 million in a "Family Trust" for the benefit of your spouse and also for your children.
Distributions can be made from this trust to your spouse and, if you choose, to your children, even if your spouse is alive.
When your spouse dies, the remainder can be distributed to divorce-protection trusts for your children.
If your estate is larger than $2 million, you can leave the excess in a "marital" trust for the benefit of your spouse. The income of this trust must be distributed to your spouse, and your spouse may or may not have the right to principal distributions. At your spouse's death, the assets in the marital trust can be distributed to divorce-protection trusts for your children.
You can protect your children's inheritance and provide for your spouse with the right type of trusts for your family situation. If you are concerned about what your family's future may hold, sit down with an estate planning attorney and be prepared to speak frankly. You may not be able to guard against every calamity that may happen, but you may well be able to protect your family from some of life's all-too- common misadventures.
Attorneys Judith Lee Sterling and Michelle H. Tucker, of Sterling & Tucker, can be reached through
www.sterlingandtucker.com or by calling (808) 531-5391.