If you’re like many parents of young adult children, one of your goals in estate planning is protecting their eventual inheritances from divorce. You don’t want to see any part of your wealth go to someone who is leaving the family – perhaps under negative circumstances.
If your child puts a prenuptial agreement in place before they marry or a postnuptial agreement after they wed, those can accomplish the same thing. However, you can’t require your child to get either of those if they don’t want to – and you can’t pressure the other party to sign one.
If a prenup or postnup protecting each spouse’s inherited assets from division in divorce doesn’t appear to be in the cards, there are estate planning strategies you can use that can help to “divorce proof” that inheritance.
How does a Connecticut DAPT work?
A key tool is a domestic asset protection trust (DAPT). Not every state addresses DAPTs in the law. Fortunately, Connecticut fairly recently (in 2020) enacted the Connecticut Qualified Dispositions in Trust Act, which does.
Like other DAPTs, those established in Connecticut place the assets in the trust under the control of a designated (“qualified”) trustee to distribute as the grantor (the person who establishes the trust) instructs them to.
The beneficiary has no direct access to the assets. That means the assets legally aren’t under their control, so they can’t be part of property division in divorce or taken by creditors to pay debts owed to them. They may also be safe from being taken by others who may prevail in a lawsuit.
The law also states that “the interest of the transferor or other beneficiary in the trust property or the income from the trust property may not be transferred, assigned, pledged or mortgaged, whether voluntarily or involuntarily, before the qualified trustee or qualified trustees actually distribute the property or income from the trust property to the beneficiary….”
It’s crucial to explore your options
DAPTs can also be used to leave an inheritance to a loved one who may not have the judgment needed to handle them responsibly. However, if that’s the primary concern, there may be better trust options.
This is just a brief overview of DAPTs in Connecticut. If you’re considering establishing one for your child, it’s important to learn more about them as well as other estate plan instruments that can help you safeguard your assets while passing them on to future generations. Getting experienced estate planning guidance is generally a very wise first step.