Divorce is a tough experience even for the most amicably separating couple. The legal matters. The financial matters. The sheer quantity of paperwork. There’s a lot to handle before it’s all final. Most divorcing couples aren’t looking for additional issues to attend to. However, make sure addressing your estate plan is on your to-do list. 

What the law says

The divorce process generally terminates any rights your ex has to your will or any trusts. That means there’s little risk to them directly accessing your assets, even if your estate plan hasn’t been revised.

But if you have minor children, the situation may be different. Minors themselves typically can’t touch their inheritance until they’re of age. (Note that age depends on where you live; 18 is the age of majority in most states, but not all.) During this time, assets are put under the care of a custodian. In many cases, the custodian is the surviving parent - and this role gives them control over how the inheritance is used. 

This situation can be avoided, though, by creating trusts for your minor children.

Inheritance on your terms

Through a trust, you appoint an individual to manage the assets your child or children will inherit and determine how distributions are made. You also can choose the timeline and circumstances under which your children are to receive their inheritance. 

Trusts aren’t just useful for minor children; they are a good resource for structuring inheritances for adult children. They can protect your assets from your children’s partners in cases of divorce. Be mindful of how much control your children have in a trust situation, though. Courts may interpret assets as marital property, making it subject to division during a divorce. To fully protect your children’s inheritance, make sure your trustee has total authority over distributions.

What kind of trust to use?

There are a range of options when it comes to trusts. A revocable living trust is a good type of trust to use as it allows the transfer of assets to a beneficiary. Because a revocable living trust is usually exempt from probate, it can be a good supplement to your will. 

Another option is a credit shelter trust. These trusts are useful for maximizing estate tax benefits for individuals who have remarried. With a credit shelter trust, you can provide financial security for your new spouse while still extended inheritance to your children. Similarly, a qualified terminable interest property (QTIP) trust works in the same way. It provides income for a surviving spouse and children receive the remainder when the surviving spouse dies.

Last but not least, an irrevocable life insurance trust (ILIT) lets you eliminate life insurance policies from your taxable estate. If policy ownership is transferred to the ILIT, your family can use these funds to cover estate costs.

Remarriage and your estate

If you choose to remarry in the future, you’ll need to review your estate plan again. Without updating, it may not reflect your current wishes. Smolin Lupin can help you determine the best solutions for your estate and your family. Contact us today to learn more.