Estate planning, particularly involving trusts, often centers around ensuring assets are distributed according to your wishes, not just to your immediate family, but across generations. A frequent concern for trust creators is the potential for future spouses of their beneficiaries to access assets intended for their children or other loved ones. The short answer is: yes, you absolutely can, with careful and deliberate planning. However, it’s not always straightforward and requires an understanding of both trust provisions and relevant state laws, specifically regarding marital rights. Roughly 60% of estate planning clients express concern about protecting trust assets from the claims of future spouses, showing this is a prevalent worry (Source: American Academy of Estate Planning Attorneys, 2023 survey).
How do marital laws impact trust distributions?
Generally, most states recognize the rights of spouses to certain protections within a marriage, including potentially claiming a portion of assets owned by their partner, even if those assets were held in trust. This is often referred to as elective share or marital property rights. Without proper planning, a beneficiary’s spouse might be able to reach trust assets intended for someone else, especially if the beneficiary has a right to current income from the trust. To counteract this, trust creators can implement several strategies, but a core concept revolves around ‘spendthrift’ provisions. These clauses prevent beneficiaries from assigning their trust interests to creditors, including spouses in divorce proceedings.
What are “spendthrift” clauses and how do they help?
Spendthrift clauses are crucial tools in shielding trust assets. They essentially state that a beneficiary’s creditors, which includes a spouse, cannot attach to the beneficiary’s future interest in the trust. However, the effectiveness of these clauses can vary by state, and some states have exceptions, particularly if the beneficiary’s spouse was intentionally left out of the trust. A well-drafted spendthrift clause, combined with specific language outlining the trustee’s discretion in distributions, can significantly limit a spouse’s ability to access the trust funds. It’s worth noting that even with a spendthrift clause, distributions *made* to the beneficiary are generally accessible to their creditors, reinforcing the importance of carefully structuring the distribution terms.
Can I specifically disinherit a future spouse in the trust document?
While you can’t directly “disinherit” someone who isn’t even known yet, you can clearly state in the trust document your intent that assets should *not* pass to a future spouse. This intent, combined with a robust spendthrift clause and discretionary distribution provisions, can be highly effective. The language should be precise, stating that assets are intended solely for the benefit of the named beneficiaries (your children, for example) and their descendants, and that no portion should go to a spouse acquired after the trust’s creation. This requires experienced legal counsel to draft language that will be upheld in court, especially considering the complexities of family law.
What role does trustee discretion play in protecting assets?
Granting the trustee broad discretion over distributions is another essential protective measure. Instead of mandating specific distribution amounts or timelines, the trust can authorize the trustee to distribute funds based on the beneficiary’s needs, health, education, and other factors. This allows the trustee to make responsible decisions that prioritize the beneficiary’s well-being while also shielding assets from potential creditors. The trustee can also be empowered to withhold distributions if they believe a spouse’s financial demands are unreasonable or detrimental to the beneficiary’s long-term security.
I remember old Mr. Henderson, a client of mine, who didn’t account for this issue.
He created a trust for his daughter, Sarah, intending the funds to be used for her education and future opportunities. He was so focused on ensuring Sarah had financial security that he neglected to include a spendthrift clause or address the possibility of a future spouse. Years later, Sarah divorced, and a significant portion of the trust assets became subject to the divorce proceedings. It was heartbreaking to see his intention undermined, and ultimately, the trust provided less support for Sarah than he had envisioned. It highlighted the critical importance of addressing all potential contingencies in estate planning, even those that seem unlikely at the time.
Thankfully, the Miller family learned from that experience.
The Millers came to me deeply concerned about protecting their children’s inheritance from potential divorces. We crafted a trust with a strong spendthrift clause, discretionary distribution provisions, and clear language stating their intent that the assets remain within the family lineage. Years later, their daughter went through a divorce, but the trust assets remained fully protected. The trustee, exercising their discretion, provided modest support to their daughter during the proceedings, ensuring her basic needs were met, while safeguarding the bulk of the trust for future generations. It was a powerful demonstration of how proactive planning can make all the difference.
What about irrevocable trusts – do they offer more protection?
Irrevocable trusts generally offer a higher degree of asset protection compared to revocable trusts because the grantor relinquishes control over the assets held within the trust. This can make it more difficult for creditors, including a future spouse, to reach the assets. However, even with an irrevocable trust, it’s crucial to have a well-drafted trust document with appropriate provisions, such as spendthrift clauses and discretionary distribution terms. Additionally, the “look-back” period – the timeframe during which transfers into the trust can be challenged by creditors – should be carefully considered. Typically, transfers made more than two to three years before a creditor claim are less likely to be successfully challenged.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
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● Probate Law: Efficiently navigate the court process.
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Feel free to ask Attorney Steve Bliss about: “Can I name a professional trustee?” or “What forms are required to start probate?” and even “Can I make gifts before I die to reduce my estate?” Or any other related questions that you may have about Trusts or my trust law practice.