As a parent, you want to help your children as much as you can. But you can’t solve all their problems and you know that many marriages end in divorce. Is there a way you can offer them an inheritance that won’t be lost in a future divorce?
If you are planning your estate and you are worried about an unfortunate marriage involving one of your children later in their life, a trust might be for you.
To understand why, you need to know a little bit about how trusts work and a little bit about how divorces work.
A little bit about trusts
Trusts are like a lock-box – you put assets in it and then you can’t touch them. You name a trustee to manage the assets. Any profits are distributed to the people you want to benefit from them.
Assets can be anything – real estate or life insurance or stocks or anything else. Once you create the trust, they are managed by a trustee and you have no control over them. You name one or more beneficiaries, and the trustee will distribute any benefits from the assets to them.
Since an asset doesn’t belong to you after you put it in a trust, it is protected in case you declare bankruptcy. The same holds true if your child should divorce years from now.
A little bit about divorce
Arkansas is a marital property state. This means that any assets available during the marriage belong to both spouses. If the couple had a joint bank account or in any way comingled whatever they received from the trust, then it is marital property and subject to both partners during the divorce.
However, since the trust doesn’t belong to your child and your child didn’t use the principal assets, then it is not marital property and remains with the trust and with your child.
For example, say the trust contains a rental property managed by your trustee. From the proceeds of that rental property, the trust sends your child $500 each month and each month during the marriage your child deposits that money into a joint checking account that both use. The deposited money is marital property and can be split during the divorce. The rental property, however, belongs to the trust and is not marital property. As long as your child didn’t touch the assets in the trust, they remain separate.
Parents want to protect their children. This is obviously a complex legal issue and requires a qualified, experienced attorney to guide you through the intricacies of both trusts and divorce.