Setting Up An Educational Trust During Divorce

If you are considering divorce, have substantial assets, and are concerned about your children's (or grandchildren's) future opportunities, you might also consider starting an educational trust for them.

There are some things you need to understand about these types of trusts and how the divorce court may view them.

Basic Trust Information and Reasons For Starting One

The specter of divorce may have you particularly concerned about your offspring's future, so it could be a good time to set up an account or a trust for their educational expenses. There are some basic things you should know about trusts, first. A trust is a legal construction that says certain assets will be held to benefit a beneficiary at specified times or in specified instances. 

 A trust can be designated for certain purposes like education. You, as the grantor of the trust, will need to designate a person called a trustee to oversee the trust. This can be yourself, your spouse, or someone else.  An inter vivos  or "living" trust is one that you fund while you are still alive and the beneficiaries can receive the assets from the trust while you are still alive, also. 

A revocable trust means you can dissolve the trust and take back your assets at any time, and a irrevocable trust means you lose control of it (unless of course, you are the designated trustee) and you cannot dissolve it since it would no longer be your property.

You designate anyone you want to be a beneficiary, even your soon-to-be ex.  For example, maybe your spouse went to work to support you while you pursued higher education and now you are a successful professional or entrepreneur. However, your spouse is going to be starting over with limited education and lesser means. An educational trust along with alimony for a period of time may allow them to return to school to increase their employability and overall situation following divorce. 

Issues About Assets During Divorce

A trust can bring up some issues about whether it should be considered a marital asset or not during divorce settlement, so there are some things you should consider when making one. A judge will be looking at your affairs to determine if you are being fair to your ex or not. If they suspect that you are using various legal means to keep you ex from getting their fair share of the marital assets, they may insist that things like trusts be counted and divided between the two of you.

Things that may bring suspicion on your motives for setting up an educational trust:

  • You make yourself the sole trustee and/or the trust is revocable.
  • You have a habit of borrowing funds from the account for other purposes and do not reimburse it.
  • It diverts substantial funds that would normally be considered marital assets into a trust that is no longer the property of you or your ex, and your ex is opposed to this.

It would be best to come to an agreement with your ex about the reasons for starting the trust and also on how it will be set up and managed. Your ex may be happy to cooperate, especially if the beneficiary is one or more of your offspring together, or themselves. Also, if you want to be a trustee of the trust, you might want to consider making your ex the co-trustee, if the divorce is amicable and you can work together.

Legal Advice

To go over the advantages and disadvantages of trusts for your particular situation, you should contact a family law attorney that is comfortable with both estate and divorce law (or has partners to handle the different aspects of your case).

For professional legal advice, contact a law firm such as Law Office of Jeffrey Dragon.