Protecting Your Child From Divorce and Lawsuit Risk

Whether or not you have a need for estate tax savings, these Dynasty provisions can be designed to help protect children from the risks of divorce and creditor’s claims that they may face in their personal life and business careers. Possible claims by a child’s current or future spouse is always a paramount concern in every estate planning discussion. Facing hard facts, a 50 percent divorce rate means that there is a substantial financial risk of losing assets to a spouse at some point. Trusts are often designed to specifically address this issue to make sure that amounts intended to be the separate and protected property of a child are not available to a claim by a divorcing spouse at any point in the future.

The same logic applies to other types of potential creditors that may arise during a child’s lifetime. Some common examples of these risks include student loan debt which, unlike every other type of obligation, is almost impossible to discharge in a personal bankruptcy. Children attending private colleges or professional schools and facing a difficult job market are often trapped for a lifetime with the burden of impossibly large student loan debt. Also personal guarantees on loans and debts from bad business decisions or just plain bad luck can cause lasting financial hardship and burdens. The point of a trust is often to make sure that a nest egg is preserved for the child which is not subject to lawsuit and liability claims no matter what happens in the future.