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Turning to trusts for asset protection during divorce

Flexibility has made trusts an indispensable item in many Texas estate plans. Trusts can help individuals achieve financial goals during life and beyond it and shelter assets from excessive taxes and creditors. Trusts may also be a smart way to shield separate assets during divorce.

Personal assets tucked into a trust before marriage are usually considered individual property during divorce litigation.

Trusts can be created and funded during a lifetime using a variety of assets from cash to stocks to real estate to entire businesses. Some trusts do not take effect until the death of the person who creates them. Only terms of living trusts can be revocable. Trust creators also have the option to make living trusts irrevocable, if financial circumstances favor it.

When an individual creates a trust and funds it with assets, those assets are no longer the legal property of a person. Ownership passes to the trust although the person who establishes it sometimes chooses to remain the trustee in charge of the assets.

Trust laws vary from state to state. However, in many cases, all the assets squirreled away in a trust established before marriage stay separate from marital property. There are exceptions when certain business enterprises are included in domestic or foreign asset protection trusts.

At the receiving end of a trust are beneficiaries. Depending on the state where a divorce happens, a spouse's financial benefits from a discretionary trust may be included in the determination of alimony. Some states say that trust assets are not controlled by beneficiaries and cannot be included as income when figuring alimony needs.

Keep in mind that states have inconsistent rules concerning the establishment of trusts, asset funding and beneficiary rules.

The purposes for trusts can be as varied as the assets, goals and beneficiaries assigned to them. Attorneys who thoroughly understand the multiples uses for trusts can explain how to create one that can best protect personal assets during single years, marriage, divorce and at the end of life.

Source: forbes.com, "Can a Trust Protect My Assets in Divorce?" Jeff Landers, July 18, 2012

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