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3 Ways Family Law Attorneys Can Use Irrevocable Divorce Trusts In Settlements

By Phillip B. Rarick, Weston Estate Planning Attorney

Irrevocable divorce trusts should always be an important tool in the Family Law Attorneys bag of tools as a well designed trust can address multiple issues that cannot be fully resolved through a Divorce Agreement.   It may be a good idea to brainstorm possible irrevocable divorce trust solutions with an experienced estate planning attorney at the commencement of the case. Here are a few examples:

Dissolution #1:           Husband and wife have minor children, ages 8 and 10.  Wife is big shopper and bad money manager.  Your client is the Husband.  He is concerned that if child support payments go directly to wife she will use some of the funds to buy expensive clothing and keep up her lavish life style  – to the detriment of the children.  Both parents agree that they want to ensure that the children go to a private high school and a prestigious college or university after high school.

Solution:  Safe Harbor Educational Trust For Minor Children.   The parties agree to jointly hire a Miami Trust attorney to prepare a Safe Harbor Trust with the following purposes:   (1) Ensure that all support funds go the children; and  (2) the children secure a first rate high school and university education.    These goals are achieved by having the funds under the management of a third party trustee – who can be an attorney, CPA, trust company, or other trusted person.   The trustee can be directed, pursuant to the Settlement Agreement, to purchase a 529 plan or F Florida Prepaid College Plan for the children’s educational needs and the balance of the funds would be set aside to meet the Husband’s support obligations and the private high school.  Of course, the Trust can incorporate all other unique requirements of the Settlement Agreement.  Each quarter (or more often) the Trustee provides an informal accounting of Trust payments so both parents are kept fully informed of all trust expenses, income, and distributions.

IRREVOCABLE-DIVORCE-TRUST

#2:  Love Child But No Marriage.   In this situation Mark Anthony (not the actor) has a two year old daughter from a prior relationship.   The child’s mother is obsessively harassing Mark,  demanding child support of over $1 million by posting pictures and demands on Facebook, texts, and Instagram.   Mark is willing to make the payment, but wants to end all further communications with the mother.  He is not interested in maintaining a relationship with his daughter because he believes mother will continue to troll him on social media.

Solution:    As required by the Support Agreement, Mark establishes an Irrevocable Minor’s Trust with the purpose of providing for the daughter’s support needs until she is 25 or secures a degree from a fully accredited college or university, whichever occurs first.   Mark funds the Trust with a onetime payment of $1 million.  Thereafter, it is the Trustee’s obligation to ensure that the funds are conservatively invested and used for the health, education, maintenance and support of the minor daughter.   The Trustee provides an informal accounting to both the mother and Mark every 90 days.

 

#3:   Protecting Homestead Contributed by Grandmother.   Jose and Emily Perez live in a house owned by Jose’s elderly mother.   They have twin daughters, age 7.    Jose’s mother wants to devise the house to the twins upon her death.  She wants Emily to continue to live in the house with her and the girls after the divorce as long as she does not remarry, but upon grandmother’s death, she wants the house or the sale proceeds available for the twins living needs or education until they are at least 25.

Solution:   Irrevocable Homestead Trust For Minor Children.     Grandmother deeds the homestead to an irrevocable Trust but retains a beneficial interest for life so Grandmother can still claim the three big benefits of homestead:  (1) protection against creditors; (2)  $50,000 property tax credit;   (3) 3%  Save Our Homes cap.  Of course, grandmother must continue to occupy the house.  Upon grandmother’s death, the trust can continue to qualify for homestead, upon application by one of the beneficiaries residing in home.  If sold, the proceeds are distributed in the Trust accounts and under the fiduciary management of the Trustee, used for the educational or other needs of the children.

 

Take-Away Points

  1. Irrevocable Divorce Trusts are often good “insurance policies” in a Marital Settlement Agreement to ensure marital funds go the children and are not misused by a free-spending spouse or young adult who is not a good money manager – such as the young teenage boy turning 18 who would prefer to buy the yellow Mustang rather than go to college.
  2. These are just a few examples of how Irrevocable Divorce trusts can be used in Marital Settlement Agreements. If is often a good idea to brainstorm with an experienced Miami Trust attorney about ways a trust may be used to protect marital funds.
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