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Trusts Can Protect Inherited Property in Divorce

divorce estate planning

By: Barry E. Haimo, Esq.
February 21, 2019

Trusts Can Protect Inherited Property in Divorce

Disassembling the empire you and your spouse have built together can become a complex and confusing process when your marriage sours – especially if you never considered the possibility of divorce.

Florida law generally deems inheritances as not subject to equitable distribution because they are not considered marital property. Rather, they are treated as separate property belonging to the person who is named the beneficiary.

However, over the course of a marriage, without any forethought of dissolution, we often share the assets of and access funds from those sources that would have otherwise been viewed as pre-marital property holdings.

The rule of thumb is this: When separate property is used in a way that benefits joint marital assets, you have commingled it, and the inheritance may no longer be considered separate property. It is then subject to division (or equitable distribution) upon divorce. Under equitable distribution, the state attempts to divide marital property “fairly,” which does not necessarily mean “equally.”

If you possess inherited assets that you are thinking about setting aside or that have been passed along to you by loved ones, trusts can be used to keep them from being included in equitable distribution.

How exactly does a trust do this? While there are nuances in provisions and language that can solidify protection depending on the specific type of trust you choose, the basic function that applies to every trust ultimately protects the assets within them.

An inheritance placed in a trust is protected because once it is established, the trust – and not you – legally owns your separate property. Every type of trust essentially holds property (your inherited assets) according to the wishes of the person opening the trust in order to benefit the person, people, or entity they name. All trusts involve three parties:

The grantor, which is the person that created the trust and who is responsible for incorporating the explicit language for how they would like assets to be distributed and used;

The trustee, which is the person or entity in charge of holding the trust property and carrying out the grantor’s wishes for it;

The beneficiary (or beneficiaries), which is the party (or parties) that will ultimately benefit from the property in the trust.

Assets are in a trust are typically only accessible by these three parties, and as long as they remain in that trust they are protected against commingling in a marriage. In other words, they cannot be pursued by a spouse in the event of a divorce.

In the case of an existing trust, your estate planning attorney can review your documents in order to identify any possible vulnerabilities with current language, and make suggestions to improve protection. He or she can also evaluate your specific circumstances to determine which type(s) may best suit your circumstances and what provisions to include if you’d like to open a new one.

Whether your goal is to shore up pre-marital property or to protect assets you’d like to pass down to future generations, there is likely a trust that can help. We’ll have more about specific types of trusts in a subsequent post. 

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com 
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