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Trusts can provide protection during property division

When a loved one leaves behind an inheritance, the intention is usually to provide the heir with a degree of financial security. Regardless of the size of an inheritance, no one wants to imagine their heir losing a significant portion of that windfall due to legal troubles. However, without the proper degree of protection, that is a real possibility. One of the most common ways that an inheritance can be threatened is through the property division portion of a Texas divorce.

In general, inheritances are considered separate property and are not subject to division within a divorce. However, if a spouse receives an inheritance and then used a portion of that wealth to support the family, the issue becomes muddled. The inheritance has now been commingled with marital funds, and a valid argument can be made that the full value of the inheritance is then subject to property division rules.

The best way to avoid this outcome is to discuss the matter with the family member or loved one who is expected to leave something of value, and structure the inheritance in such a way as to safeguard it against loss during divorce. A trust is a good option, as the assets used to fund a trust are thereafter considered to be "owned" by the trust itself, and not the beneficiary. In this way, if a beneficiary decides to divorce, the assets held within the trust are not part of the property division process.

For those in Texas who are interested in learning more about how to safeguard against losing inherited wealth during property division, it is important to sit down with an attorney and discuss the available options. Making use of trusts to protect an inheritance is a step that must be taken far in advance of becoming necessary. That said, it is an approach that can make a world of difference if a marriage ends, and it also goes a long way toward ensuring that a loved one's intentions are honored when it comes to an inheritance.

Source: CBS News, "5 reasons you need a trust, not a will", Ray Martin, Sept. 17, 2015

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