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A Trust Can Save Your Child's Inheritance in a Divorce

A Trust Can Save Your Child's Inheritance in a Divorce

Inheritances can be tricky things when couples divorce. Although an inheritance left to one spouse is considered an individual asset rather than a marital one, once it's commingled with marital assets (such as in a bank account) or used to buy joint property, it becomes part of the property division of the divorce.

Many parents leave their children considerable amounts of money to help ensure their financial security and a comfortable lifestyle. However, without proper handling, a good deal of that money can be taken from them in a divorce.

Therefore, more people are choosing to leave those inheritances in the form of trusts. By placing the money in a trust, it belongs only to the beneficiary. It cannot be part of the marital property division.

Of course, if the beneficiary chooses to move that money to a joint account during the marriage or use it to buy a house for the couple, it will still become marital property. That's why it's important for everyone to understand the concept of commingling individual and marital assets.

As the person setting up the trust you can place stipulations on it like for what purpose the money can be used. That can help protect the funds for your child. This is often done for all sorts of reasons beyond keeping it from a future ex-daughter-in-law or son-in-law. Often, parents are concerned that their children may not be able to responsibly handle a large amount of money.

If you set up a trust for your child before he or she gets married or even starts contemplating marriage, you don't have to worry that the new in-law will see it as an affront to him or her. There won't be anything personal about it. Even if your child tries to talk you into changing it after the marriage, it's essential to remember that divorce is always a possibility and that keeping your money in the family and securing their future is more important than potential hurt feelings.

Source: Kiplinger, "A Trust Can Protect Your Adult Child’s Assets from a Failed Marriage," Lisa Brown, CFP, accessed March 16, 2017

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