The Enduring Value of Asset Protection Trusts
Article published in Northampton Living
(February 2024)
EXPERT CONTRIBUTOR
Claire Crowley & Ben Palkowski
Estate Planning Attorneys
Old Colony Law
413 387 0080
oldcolonylaw.com
Considering that almost half of marriages end in divorce, worrying over the possibility of an adult child's divorce is common for many parents. If you are a parent of two married children, there's about a 50 percent chance one of your children will get divorced. If you have three or more children, the possibility becomes even more likely. Statistics aside, if your parental instinct says that your child's marriage is in trouble, it probably is. While you can’t prevent a child’s heartbreak, you can utilize your estate plan to ensure financial turmoil doesn’t compound the anguish of a foiled “happily ever after.”
Marriages are complex and involve various factors that can raise uncertainties or concerns. You may wonder about your daughter-in-law’s ability to hold a job or your son-in-law’s maturity. There may be substance abuse issues, extreme political views, or shady business dealings that shape your perspective on how you want to leave your assets upon your death. On the other hand, you may adore your son or daughter’s spouse, but don’t want to risk them staking claim over any of your family's assets after you're gone. These are frequent and important conversations we have with clients that have married children.
Establishing an asset protection trust is an excellent method to protect your child’s inheritance in the event they get divorced. If the trust is properly drafted and managed, undistributed trust assets are protected from claims of ownership by a divorcing in-law. The trustee, whom you get to name, manages the trust assets on behalf of your child and exercises discretion over the distributions of the trust funds, ensuring that the trust assets stay in your family and out of reach of your child’s spouse. Other types of trusts, such as age of maturity trusts, do not afford this high level of asset safekeeping.
Asset protection trusts can also be used to protect your child’s inheritance from other types of creditors. These trusts are useful if your child, married or not, is in a high-risk occupation or is a business owner. Those who are self-employed or have careers in the law, health care, finance, wellness or construction may be subject to frequent and costly lawsuits by clients, customers or patients. The asset protection trust construct allows undistributed trust assets to remain out of reach of your children’s creditors.
The goal of safeguarding an inheritance is not to cause discord or distrust but to ensure that your family assets are protected. Consulting with Old Colony Law can help ensure the best strategies are employed to protect assets and inheritances for the benefit of your children. While you can’t save your child from a broken heart, a well-thought-out estate plan can help provide you with peace of mind while protecting your family's wealth for future generations.
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