Protecting Your Children from Their Nightmares…and Yours, 03/30/2007
You tuck your children into bed and kiss them goodnight. In the doorway, you watch them peacefully drift off to sleep. They are so innocent, so naïve. After your long day, you fall into bed and dream of the day your children will be grown. You dream you are walking your daughter down the aisle at her wedding, beaming with pride. Your dream starts out normally, but then you see that your soon-to-be son-in-law is actually a chimpanzee.
While our dreams can be a stage for many bizarre fears, this one is fairly logical. No, it’s not likely that your daughter will marry a chimpanzee. However, we have reason to be mindful of our children getting into bad marriages destined to end in divorce. In the United States, the rate of divorce is up dramatically from one or two generations ago. The rate of divorce is more than double the rate in 1940 and is up 86% from 1960. Nearly half of all marriages in the United States end in divorce.
Is it possible that your children or their descendants could be a party to a divorce? Definitely. So, how can you protect your children in the event of a divorce? First, upon your death, you can leave assets to your children in a “divorce protection” trust. Such a trust allows your child to keep his or her inheritance from being considered marital property or community property. However, your child can still be in charge of the money. He or she can be the trustee and can make decisions on the management and investment of the money. Even if the child is not the trustee, he or she may have the power to pull money out of the trust.
In addition to protecting your child in the event of his or her divorce, you can also protect them from the unlikely event of your marriage ending. If you remarry (especially if your spouse is not the parent of your children), you can ensure that your children are provided for after your death. Rather than leaving all of your assets outright to your spouse at your death, you can leave those assets in a trust. You can leave up to $2 million (in 2007) in a “Family Trust” for the benefit of the spouse and/or children. This trust can pay income or principal for the needs of the spouse and/or children. Anything over that amount can be left in a “Marital Trust,” paying all income to the spouse. The Marital Trust could be dipped into for the needs of the spouse, or you could provide the spouse with income only. Either way, whatever is left over would be there for the children and would not go to some new spouse your surviving spouse might have met.
