“How do I protect my children’s inheritance from my ex spouse?”
If you are recently divorced and have minor children, then you may be wondering what would happen to your property if something were to happen to you.
In other words, although you most likely intend for your property and savings to be used for the benefit of your children, who would be in charge of managing that property for their benefit?
If you don’t something in writing, then it’s likely that the state will give your minor children’s natural guardian control over their money - and, as I’m sure you can guess, their natural guardian guardian would be your ex-spouse. That might be a problem.
So what can you do to make sure that your ex-spouse doesn’t inadvertently have control over your children’s inheritance?
The easiest and simplest solution would be to make sure that your revocable living trust has a “continuing trust” built into it.
What is a continuing trust?
Most revocable living trust are set up to avoid probate, but they often have provisions in place that state the beneficiaries, in this case, your children, would be given the money outright upon your death. As mentioned above, that would create a problem if your children are still minor beneficiaries because then they would need to place that money and property in the hands of a custodian (e.g., ex spouse).
To avoid that problem, you set up a continuing trust that instructs the successor trustee that instead of giving the money outright to the to the child or custodian for the benefit of the child, the money is held in a continuing trust also sometimes referred to you as a “sub-trust” for the benefit of each child (or a pooled trust, if you want to keep all the money in one pot for your children).
This continuing trust or sub-trust has a few benefits:
The first one, of course, is to make sure that the person you trust (i.e. your successor trustee) is the one in charge of managing the property and money for the benefit of your child (not your ex). The second benefit is that, while the money is in the continuing trust, it can also be shielded from creditors or other risks that may be applicable to your child. And the third benefit, is that with a continuing trust you can actually extend the date of distribution to extend that asset protection feature for your child.
For example, let’s say you set up a continuing trust within your revocable living trust and state that the successor trustee would manage the money for the benefit of your child until they reach certain milestones. Often times the milestones will be different age like age 25,30 and 35.
Prior to hitting those distribution ages, the trustee can still use the money for the child’s health, education, maintenance, and support (commonly referred to as HEMS or “ascertainable standard), but by structuring the containing trust with extended distribution dates, the money held for your children’s benefit will be protected for a longer period of time, and still gives your child a chance to learn how to manage the money in smaller increments. That way, as they get older, they will be able to make wiser financial decisions. It’s also the general hope that as they get older, the risk of creditors, bankruptcy, lawsuits, and divorce also goes down.
So if you want to protect your children’s inheritance from your ex spouse, and also would like the benefit of protecting your children’s inheritance from other potential risks, then you should reach out to your estate planning attorney to make sure your trust has properly structured continuing trusts within it.
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Joseph M. Lento, J.D.
Your Local Estate Planning Attorney
www.PerennialEstatePlanning.com
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Stoneham, MA 02180
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