A frequent question people have when updating their wills is whether they still need a trust for an adult child. The child has graduated college, has a well-paying job, is married and has children. 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 current federal estate tax exemption in 2021 is $11.7 million per person and the current New York State estate tax exemption is $5.93 million per person, so creating a trust to save taxes upon death isn’t as big a factor as it used to be. 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 a significant portion of their inheritance due to 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 are more involved than just leaving assets outright to children. However, for those who want to protect their child’s wealth a trust can be well worth it. 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.
The experienced estate planning attorneys at Kurre Schneps LLP are skilled at putting together estate plans where estates stay within the bloodline and do not go to divorcing spouses.
Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”
