Divorce can be difficult, but the financial aspects add even more stress, and not always just to the couple. What happens if you have a beneficiary in your trust who is going through a legal divorce, or may have one in the future? It is important that both of you take the proper steps needed to protect the trust assets from their ex-partner.
There are a few steps and precautions you can take to ensure that your beneficiaries receive the assets that you are leaving for them.
6 steps for protecting trust assets in the event of a beneficiary’s divorce
If you are worried about your beneficiary’s ex-spouse claiming assets from your trust during a divorce, there are options. The goal is to keep these assets safe from creditors that might claim them on behalf of the beneficiary’s divorced spouse. Here are a few steps that you can consider to help meet this goal:
- Avoid a mandatory distribution or withdrawal right — While you may want to give the beneficiary as much access as possible, avoiding a withdrawal right or mandatory distribution may help them in the long run. If the beneficiary is able to access the assets in the trust, then the creditors will likely be able to as well.
- Make it irrevocable — This is an important step because if the trust is revocable, the creditor for the divorced spouse can make an argument that their client should have access. Once a trust is irrevocable due to the grantor’s passing, the terms are permanent and cannot be changed without a beneficiary or court approval.
- Include a spendthrift provision — A spendthrift provision is normally used to prevent beneficiaries from using the assets to get credit. In this case, it can be helpful because the beneficiary cannot assign or transfer their interest in the trust. This means that creditors cannot benefit directly from the trustee.
- Be as specific as possible — If you do not want anyone besides your beneficiary to have access to the assets, you can include that specifically in the trust. Be sure to include a provision that specifically states that nonbeneficiaries are unable to benefit from the trust.
- Give control to the trustee — As a trustor, you can allow the trustee to have control over the beneficiary distributions. This means expressing your wishes that the trustee follow specific guidelines to enforce a fair distribution among beneficiaries. This could also be accomplished with a letter describing your intent as the grantor.
- Consult with a specialist — Estate planning can be an overwhelming task. And when you are trying to plan for specifics, like a possible beneficiary divorce, it may seem like an even more complicated task. But we are here to help along with your estate planning attorney.
How a CFP® professional can help protect your trust assets from a beneficiary’s divorce
Asset protection and estate planning go hand in hand. By talking with a CERTIFIED FINANCIAL PLANNER™ professional, you can be sure that you cover all your bases when it comes to estate planning, including how to ensure that your trust protects your assets in the case of your beneficiary getting a divorce.
A CFP® professional can help you with every detail of your inheritance planning, including your estate planning. Besides helping your attorney with setting up a trust, a CFP® professional can also help you think through a variety of other aspects of your estate planning, such as:
- Appointing power of attorney for both your finances and future health care decisions
- Choosing a variety of insurance types, including life, disability income and long-term care
- Making plans to minimize legal, tax and court fees
These are all necessary to ensure that you have everything needed for smooth asset distribution to your beneficiary.
Talk to a ProVise CFP® professional about protecting trust assets from divorce
A beneficiary’s divorce may seem like it will put a wrench in your trust wishes, but there are ways to protect them. At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about keeping trust assets safe from a beneficiary’s divorce? Contact ProVise today to schedule a complimentary consultation.
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