After witnessing a close friend go through a messy divorce, Nora and Jake are understandably concerned about safeguarding their assets for their children’s future. They want to ensure that what they pass down remains protected, even in the face of potential legal challenges or claims from future divorcing spouses. This is a common concern for many parents, especially those who have seen firsthand the financial and emotional turmoil that divorce can bring.
Jason Marx, Partner in Tax, Trusts, and Estates, offers valuable guidance on how Nora and Jake can protect their assets for their children and future generations. One of the most effective strategies is to establish a properly designed trust, which serves as a robust barrier against claims from divorcing spouses.
The Power of a Discretionary Trust
A key takeaway from Jason’s advice is the importance of a discretionary trust. This type of trust gives the trustees full discretion to decide when and how much to distribute to the beneficiaries, which in this case would be Nora and Jake’s children. By granting trustees this level of control, the trust can protect the assets from being accessed by a divorcing spouse. Courts are less likely to interfere with the trust’s decisions if the trustees have broad discretion, providing a stronger shield for the assets.
Risks of Outright Inheritance
Jason also highlights the risks of leaving assets outright to children, which can expose those assets to claims in the event of a divorce. Even if the inherited assets are kept separate and not commingled with marital property, there’s still a risk that a divorcing spouse could make a claim on them. By contrast, assets held in a well-designed trust are far less vulnerable to such claims.
Considering Prenuptial Agreements
In addition to establishing a trust, Jason recommends that Nora and Jake consider encouraging their children to enter into prenuptial agreements. A prenup can clearly define which assets are separate and ensure that inherited assets, particularly those held in trust, are excluded from any marital distribution in the event of a divorce. This adds an extra layer of protection and clarity, reducing the chances of disputes later on.
Nora and Jake’s concerns are shared by many parents who want to protect their children’s inheritance from the potential fallout of a divorce. By setting up a discretionary trust and considering prenuptial agreements, they can significantly reduce the risk of their assets being exposed to legal claims. These strategies, guided by expert advice from Jason Marx, ensure that their legacy remains intact and protected for future generations.