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Using a trust to protect your assets in divorce

When you think of a trust, you're likely to think of it as a tool rich families use to pass their wealth from one generation to the next. But a trust is a multifaceted entity that serves a number of purposes, and they are being utilized more and more each day. It turns out that trusts can even help with protecting assets in the event of a divorce. But how?

What is a trust?

First off, in order to use a trust to its best ability, you need to understand what it is. Let's look at a few of the components that make up a trust:

  • Grantor. This is the person who establishes the trust in the first place. They're also known as the trustor.

  • Trustee. The trustee is responsible for enforcing the rules of the trust that were set in place by the grantor. They're also responsible for distributing the trust assets. Trustees can be one or more individuals, or they can be a bigger corporation, like a bank. Grantors can appoint themselves as trustees, but in the case of a divorce, having a third-party trustee is best.

  • Beneficiary. This is the person who receives the benefits or the assets that are established inside of the trust.

The assets inside of a trust are for the beneficiary and moved around by the trustee. Once a trust is formed, its contents no longer legally belong to you. You and your assets benefit from this because they are basically untouchable in a divorce and are treated as separate property.

Trusts that provide protection

If you're considering getting a trust to protect your assets from divorce, then it's important to look at the right ones.

  • Third-party trust. In this kind of trust, the grantor will create and fund it for the benefit of the third-party. A third-party trust will greatly benefit the children of the grantor by keeping the child's inheritance from being subject to division under equitable division laws.

  • Irrevocable self-settled trust. With this trust, the grantor does not serve as the trustee, like a revocable trust. Since the grantor passes off the trust to a third-party, and does not have any control of the assets it contains, it won't be considered marital property.

These types of trusts will protect your assets from your spouse only if they're placed in an account completely separate from them. If you're unsure getting a trust is the best thing for you and your unique situation, approach an attorney who can help you make the right choice.

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