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Estate planning around the divorce of children

by | Dec 6, 2012 | Estate Planning |

One strong argument for why we should all undertake solid estate planning is that it ensures that an estate’s assets will be distributed in the ways the creator of that estate desires. But there are many nuances that older Florida residents should be aware of to be sure that what they want to have happen, actually does.

What if your married child is named as the heir of your estate, and then that child gets divorced? If you don’t want any of your estate to go to the ex-in-law, some attention to exact estate planning language may be required. This is because of some apparent discrepancies in how courts might interpret estate plan language.

For example, in an equitable distribution state like Florida, it is generally understood that assets inherited by a married adult are their personal property and not subject to being included for property division in the event of a divorce. This assurance of transfer could be further enhanced if the inheritance is in the form of a trust that gets dispersed incrementally. The child might not ever see any of the inheritance until after the divorce, making it untouchable to the ex-in-law.

But, there is case law from another equitable distribution state in which a court ruled that an heir had vested interest in a trust set up by her parents the moment she was named beneficiary. She might never receive a penny of the trust because she was only to receive something if the parents hadn’t exhausted the funds themselves. Because of the court’s ruling, the value of the appreciation of the trust was counted as marital property that had to be divided.

For Florida residents, there are several options in trust creation that might keep assets protected from family disputes such as divorces. One may be the establishment of multiple heirs to avoid the vested interest argument — leaving assets to both a child and grandchildren after the child’s death.

The key is in acknowledging that laws are subject to interpretation by the courts and that it may require astute legal counsel to anticipate and address such instances in the language of the estate plan.

Source: The Gazette, “Money & the Law: Child’s divorce can complicate estate planning,” Jim Flynn, Nov. 25, 2012