Trusts and Marriage – Protecting Your Assets

Understanding how marital status affects trusts is crucial, whether entering into or dissolving a union. From safeguarding assets from creditors to ensuring legacy preservation, this newsletter delves into the nuanced implications of different trust structures amidst marital changes. Considerations for selecting the right trust to safeguard your assets are also explored.

Estate planning attorneys can use trusts to achieve a number of different goals, including protecting assets from creditors, reducing tax liability, and resolving other potential problems. Marriage can affect the operation of certain trusts in sometimes surprising ways, so it is important to consult your attorney if you are planning to embark on a new marriage or if your marriage relationship is coming to an end. Some families want to create trusts to protect legacy property before the start of a marriage or seek to incorporate a new partner into an existing trust. Every situation comes with its own challenges, but here are some general factors to keep in mind.

Revocable Living Trusts are Not the Best Tool for Protecting Assets

Many people build their estate plan around a revocable living trust as an easy way to save their loved ones the expense, difficulties, and delays of the probate process. When you create a revocable living trust and transfer property into it, you can continue to use your property just as you did before. If you become incapacitated, your successor trustee could step in to manage your assets and pay bills, so this can be a helpful protective Feature.

However, because you can revoke or change this type of trust, the property in the trust is still considered to belong to you for many purposes. So, while property can pass directly to beneficiaries when you pass away, making the transfer of property easy and quick, the property is not protected from creditors. In addition, the property is still treated as part of your estate for estate tax purposes.

Married couples can create a revocable trust jointly. When one partner passes away, the trust continues to operate with the other partner as the primary beneficiary and trustee. If you have a revocable trust you created before you got married, property in the trust could remain your separate property not subject to division in divorce, but if you add marital property to the trust, then your spouse will have a share in the ownership of that property. If you want to maintain the separate quality of property, it is a good idea to consult an attorney at the time you get married to learn the best steps to take.

Different Types of Irrevocable Trusts Can Be Used for Asset Protection

Unlike revocable trusts, which are easy to change or cancel, irrevocable trusts are virtually set in stone. Once you transfer property into an irrevocable trust, it belongs to the trust, not you. This protects the property, but you lose control over it. Property in an irrevocable trust will be distributed according to the trust terms even if you later change your mind and want to take it back. An irrevocable trust could be used to protect family property from being divided in a divorce or depleted due to creditors. However, it is essential to follow all state and federal rules when establishing and operating this type of Trust.

We Can Develop the Right Trust to Protect Your Assets

Before you can determine how to take best advantage of a trust, it is important to analyze your goals in light of the details of your situation. If you’d like to learn more about how a trust could be used to protect your assets or if you have questions about how a marriage or divorce could impact your trust, we invite you to schedule a consultation.