There is generally a view among clients visiting us for the first time that it is a devil's choice. They believe that they either leave an inheritance to an heir and run the rist of divorce, or they disinherit that heir or leave them less.
There are however, planning tools and estate planning secrets that allow you to give a child or grandchild almost full use of assets while protecting them from creditors of the child and even from divorce.
These planning options run across a spectrum ranging from simple to very complex. As is often the case, the more complex the plan the more effective it is. Asset protection is generally about layering the techniques to make them less attractive and more expensive to attack. And divorce protection planning is the same.
First, and at the most simple level. You can leave assets outrigh, but leave a note or memorandum to the heir encourging the assets to be kept in a segregated account and that they not be placed in joint names with a spouse. In Pennsylvania, this does offer some protection. If the heir keeps the assets separate, they do not become matital assets in the event of a divorce. However, the growth in the value of those assets is marital property. So an issue still remains and, there is a strong psychological compulsion of heirs to make the assets joint even with your memorandum
Next, you can also suggest a pre or psot nuptual agreement be executed as a condition of the gift. Understand however, that this can be viewed a medling in the affiars of your heirs and can cause hard feeels and a problem within their relationship. Also, the heir is free to ignore the document or to voluntarily modify it before or after your death and you would not know. Even where a lawyer is paid by a parent, the lawyer cannot disclose communiocations with the child.
So, while these alternatives have some merit in simplicity, there are obvious disadvantages.
In the next installment we will examine a nummber of more powerful and effective techniques that many affluent families are using. In the meanwhile, we have an article on this topic that you can read here just by clicking.
If you have questions or comments please leave them below or email me at [email protected]
David M. Frees III, Esquire is Chariman of the Trust, Estates, and Wealth Preservation Section
of Unrh, Turner, Burke and Frees
He is also an author and speaker on the topics of intergeneraltional wealth, Estate and Inheritance Tax Planning,
Philanthropy and Family Foundations and Donor Advised Funds.