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Parental Trusts: Protecting Your Child’s Inheritance

You are not happy with your child’s marriage. Perhaps, it is just a feeling that you have.  Or it may be more apparent – your child may be separated or shared with you that she is in a bad marriage.

Then, there are the facts. The divorce rate in the United States is approximately 50%. You may be divorced or in a second marriage yourself.

The key is not to leave your assets directly to your child but in a “Safe Trust,” sometimes referred to as a “Family Protection Trust.” The trust is designed to prevent the child’s spouse from having rights or access to any inheritance that you leave for your child.

This protects your child’s inheritance from:

1. Being part of the marital pot in the event of a divorce

2. Benefiting your child’s spouse if your child predeceases their spouse

The key is to draft the trust as a discretionary trust with clear language that the Trustee may not be forced by either the beneficiary or a court to make a distribution to the child-beneficiary.

With respect to alimony, under the laws of some states, regardless of whether a trust has a spendthrift provision or is a discretionary trust (or both), the children of a beneficiary and/or a former spouse may have rights to reach trust assets that are otherwise protected from creditors.

On Nov. 27, 2013, the Second District Court of Appeal of Florida issued its decision in Berlinger v. Casselberry, Case No. 2D12-6470 (Fla. 2d DCA Nov. 27, 2013). Berlinger is the first Florida appellate decision addressing whether a former spouse, who has a judgment in the form of support resulting from dissolution of marriage, can obtain a continuing garnishment, since the enactment of the Florida Trust Code (FTC).

For residents of Florida, based upon Berlinger, parents desiring maximum protection for their children should consider creating and administering discretionary trusts in Alaska, Nevada or South Dakota, rather than Florida.

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