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Protect Your Children's Inheritance with an Irrevocable Trust
written by Mike Ballew March 17, 2024
Eggstack

Remarriage can cause family friction, particularly when the new spouse is younger. Children from a previous marriage may see them as competition. You can protect your children’s inheritance with an irrevocable trust.

Sure, there are wills and prenuptial agreements, but they can be challenged. An irrevocable trust is so ironclad you can’t even change it.

Irrevocable Trust

An irrevocable trust is prepared with the assistance of an attorney. The trust sets aside specific assets to go where you want after you die. It’s the perfect tool to protect your children’s inheritance in a remarriage.

As the creator of the trust, you are the grantor, and your children from a previous marriage are the beneficiaries. The trustee is an entity you designate to oversee the trust. The trustee can be a family member, friend, trusted advisor such as an attorney or accountant, or a financial institution such as a bank or trust company. The trustee is legally bound by the terms of the irrevocable trust. Obviously, you need to choose someone who will outlive you.

How Does an Irrevocable Trust Work?

Once an asset is placed into an irrevocable trust, you no longer own it. That means you need to part ways with it now, not at some theoretical point in the future.

There are several advantages to an irrevocable trust. The assets in an irrevocable trust are protected from divorce, creditors, lawsuits, and estate taxes. An irrevocable trust does not go through probate, which makes it private.

The terms of an irrevocable trust are established by you. You can set it up to pay out over time if you have one or more children who are less than responsible with money.

Isn’t There an Easier Way?

Setting up an irrevocable trust takes take time and money. You will pay a few thousand dollars to an attorney, or a few hundred if you opt for a do-it-yourself solution such as Legal Zoom.

You could put in your will that you want a specific sum of money to go to your children and hope for the best. Maybe it will happen, maybe it won’t. If you set up your will such that everything goes to your new spouse with instructions to distribute funds to your children after your spouse passes, they could spend themselves into bankruptcy and nothing will be left for your children.

You could give your children their inheritance now while you’re still living. That would be weird, but some people do it. You should be aware that there are tax regulations that govern such giving.

Bottom Line

An irrevocable trust is a good solution if you want an airtight method to ensure your children from a previous marriage receive an inheritance. No one likes to think about such things, but that's life. We aren’t going to live forever, not on this earth anyway.

Photo credit: Freepik Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
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Eggstack founder, Financial Planning Association member, engineer, and software developer.