Most people in the state of Mississippi craft their estate plan with their spouse in mind. Your partner is typically your biggest beneficiary, your estate administrator, and the person you give power of attorney to. This is one of the reasons why it is so important to update your estate plan when you are getting divorced.
In addition to removing provisions from your estate plan that give your ex the power to pull the plug if you are in a coma, you may also want to consider taking steps to protect some of your assets from division.
Creating a domestic asset protection trust (DAPT) for separate assets or decanting an existing trust into a new trust that your soon-to-be-ex spouse has no access to can prevent your ex from getting his or her hands on something that is yours.
Palmer & Slay’s experienced estate planning attorneys can help you assess what options you have to protect your assets in the face of divorce and work with you to ensure your estate plan reflects your current wishes instead of protecting your former partner.
It’s Time to A-DAPT.
A domestic asset protection trust, or DAPT, is a legally created entity designed to protect assets from creditors, lawsuits, and other financial liabilities. By transferring assets into a trust, you remove them from your direct ownership while still benefiting from their use.
The assets in a DAPT will remain untouched during a divorce if they were separate property — not marital or community property —before they became trust property. AND no marital or community property was added to the trust and commingled with the separate property during the marriage. This is because marital property is generally subject to division at divorce while separate property is not.
In order to ensure DAPT assets will not be touched at divorce, you must carefully consider which assets to transfer into the trust, and when. The best time to set up these trusts is before marriage — or at least well before a divorce seems likely — but the Palmer & Slay team can advise you of your asset protection options no matter what your relationship status.
Decanting Assets Into A Different Trust
Trust decanting is a legal strategy used to modify the terms of an irrevocable trust by transferring its assets to a new trust with different provisions. This process essentially “pours” the assets from the original trust into a new one — just like someone who pours their liquor into a crystal decanter.
Divorcing couples who previously established an irrevocable trust often need to decant the assets into a new trust, or a variety of trusts, to protect them.
- If a trust was initially set up to benefit you and your spouse (or your children), decanting allows you to modify the beneficiary designations in light of the impending divorce. This could involve removing your soon-to-be ex-spouse as a beneficiary or altering the distribution scheme.
- If the trustee is your ex-spouse or someone close to them, decanting can strip that person of their trust responsibilities.
- Decanting can be used to restructure the trust in a way that minimizes tax liabilities, taking into account your post-divorce finances.
Overall, trust decanting before divorce can offer a way to adapt and protect trust assets in light of changing personal circumstances, ensuring that the intentions of the grantor are still fulfilled while navigating the complexities of divorce proceedings.
Preserving Your Wealth. Protecting Your Loved Ones.
If you have questions or concerns about how your divorce may impact your estate plan, the Palmer & Slay team is here to help. Making sure your wishes are respected could be as simple as updating your will, but if you have substantial assets, more dramatic action may be necessary. Please contact our experienced estate planning attorneys today to schedule an initial consultation.