As a caring parent, you have probably made an estate plan and allocated your assets to your children. However, you might be a bit uncertain whether your son or daughter married the right person and if what you leave them with will someday be given to their ex-spouse. Each state in the US is different, but when assets are inherited by your child, the assets typically do not become part of the marital estate. It is important to understand how properties are divided during a divorce in order to know how to protect your child’s inheritance in the event of a divorce. Here is everything you need to know about your estate plan and whether it can protect your children in the event of a divorce.
Estate Plan and Divorce
It is commonly stated that inherited assets are separate property, and they are not subject to a divorce. However, while this is true on the surface, it can easily become slippery down the road. Once your child inherits the property, it will depend on what they do with the property. Mostly, your child will mix the money and other assets with marital assets. They might use the money to pay for mortgages or decide to use marital assets to renovate inherited properties. When the spouse is filing for divorce, they will claim that inherited assets have been converted to marital assets because marital funds were used for renovations or other purposes.
If your child receives an inheritance and combines it with assets they own jointly with their spouse, the inheritance may become subject to marital property division in the event of a divorce. You need to structure your estate plan in a way that funds are held for your children’s use and benefit, and continue to be separate and protected even in the event of a divorce. The most effective way of protecting such assets is to keep the inheritance in a trust account, which further protects inherited wealth from a potential future divorce.
Options for Protecting your Children’s Inheritance in the Event of a Divorce
Trusts are usually an effective option for protecting your children’s inheritance in the event of a divorce. Trusts also come with other benefits besides protection. There are revocable trusts as well as irrevocable trusts, and they all have their own advantages depending on your key needs. A revocable trust can be revoked, making it more flexible. The grantor (you’re the grantor) usually controls the assets in the trust, sets primary terms of distributions, and can easily appoint an independent successor trustee to manage the trust after their death. In this case, assets are assumed to be owned by the trust and those intended for your children can never become marital property. Essentially, these assets are not subject to division in the event of a divorce.
For irrevocable trusts, they cannot be revoked as in the case of revocable. Since this trust cannot be revoked, you cannot reclaim asset ownership as the grantor. In this case, the estate is not only protected from future creditors and potential divorce, but also from you. Irrevocable trusts entail lack of potential flexibility, depending on the design of the trust. If you change your mind and decide to make some changes to your inheritance allocation, you will be barred from doing this. This makes it important to consult with professional and experienced estate planning and trust attorneys, such as those at Tanko Law.
Benefits of Estate Planning
Here are the benefits of estate planning and why you should consider it:
1. Protect Your Children
If you don’t have an estate plan, your children end up with less and it takes them longer to access it. This causes your children problems and they may not have enough to pay for their livelihood in case of a demise. An estate plan protects your children and ensures that they have their rightful share at the right time. Even for younger children, estate planning ensures that they receive the care you would want them to have.
2. Reduce your Estate Taxes
Estate planning is all about protecting your children and family, which also means protecting them from the Internal Revenue Service (IRS). Estate planning makes it possible to transfer assets to your children while creating the smallest possible tax burden for them. Without an estate plan, the amount of taxes your children will be required to pay can be quite huge.
3. Calculate Sustainability
You might have a clear idea of what you would like to leave for your children, but how does that correlate to your income? Estate planning helps you to reconcile your income with legacy plans. It also creates an opportunity for you to assess how sustainable your income is over a specific period. You can easily estimate how much you intend to leave your children with when you already know your approximate expenditure.
4. Make Retirement Easier
Estate planning is not just for your family, but it can also benefit you while you’re alive. In particular, estate planning can help you make sure that you’re eligible for government benefits, such as Medicare. By sorting out your financial life, you’re more likely to take advantage of government programs available to you during your retirement. This will also give you peace of mind, knowing that your family and children are taken care of in any circumstance.
Why Choose Tanko Law?
Tanko Law has been providing the best in Montana probate services, estate planning, wills and trusts and elder law since he opened his office doors in 1995. Tanko Law Office was founded with only one mission, providing the best legal advice in a caring manner and with outstanding customer service. Learning how to protect your assets, get a loved one’s estate through probate, or otherwise ensuring that your loved ones are cared for after a loss can be complex and difficult. Tanko Law Office will walk you through every step of the process and ensure that every legal need you have is covered. Contact us today to learn more and get started with your estate planning.