3 CREATIVE WAYS FAMILY LAW ATTORNEYS CAN USE TRUSTS
By: Phillip B. Rarick, Miami Trust Attorney, and Maria C. Gonzalez, B.C.C., Family Law Attorney
The following note is a brief review of three popular trusts that can help ensure compliance with future financial obligations set forth in a Pre-Nuptial Agreement or Marital Settlement Agreement.
Hypothetical #1. Husband and Wife plan to marry and are expecting their first child in 7 months. Husband has a net worth of $10 million; Wife $200,000. In addition to all support needs for their child, Wife wants assurance that she will have an independent source of funds during the marriage, and sufficient funds if the marriage is dissolved to maintain the same quality of lifestyle she enjoyed during the marriage. Husband wants assurance that funds set aside for Wife are not used for a lavish lifestyle during the marriage; if Wife dies such funds would continue to be wisely managed for their children.
Solution: Irrevocable Spousal Lifetime Access Trust. The Pre-Nup requires establishment of an irrevocable Trust with a third party as Trustee for the sole benefit of Wife for her lifetime. In addition to any child support obligations, Husband will commit to fund $1 million into an Irrevocable Spousal Lifetime Access Trust. The Pre-Nup requires the Husband to fund the Trust with $1 million cash and the Trustee is required to purchase a $5 million term life insurance policy with the Trust as the beneficiary. The “Triggering Event” is defined as the annulment, dissolution of marriage, divorce proceeding or similar proceeding between the Husband and Wife. Wife has liberal rights to all income produced by the Trust; therefore prior to the Triggering Event, the Trustee can distribute such amounts of income as the Wife requests for her health, education, maintenance, support, and reasonable comfort. After the Triggering Event, the Wife can direct the Trust to distribute all income and principal as she wishes provided sufficient funds remain to fund the Life Policy. Note: This type of Trust has excellent asset protection features for the funds in the Trust.
Hypothetical #2: Both Husband and Wife want to ensure that their children will receive not just a high-quality private education through high school, but also have no excuse not to secure a quality post-high school degree, including a graduate degree.
Solution: Children’s Educational Trust. The parties commit to paying $100 per child per month into an Irrevocable Children’s Educational Trust. The Trustee is required to invest the funds in the Florida Prepaid College Fund, Florida 529 Savings Plan, or similar 529 plan. Individuals can contribute as much as $90,000 to a 529 plan in 2024 if they treat the contribution as spread over a 5-year period. Such plans grow tax free and avoid the high tax rate of Trusts. These plans provide excellent income tax reduction planning plus help ensure a high quality education for the children.
Hypothetical #3: One or both parties is not a good money manager which has led to financial stress that is a primary cause for the couple’s divorce. Both agree for the need to purchase or continue payment offer existing life insurance policies upon death of the spouse who has been the main provider.
Solution: Children’s Safe Harbor Trust. The MSA provides for the establishment of an irrevocable Trust to own the policies and pay the premiums. See post Children’s Safe Harbor Trust. The parties agree to yearly funding to the Trust to cover the premium payments. The sole beneficiary of the Trusts are the children; distribution standards are health, education, support, and best interests of the child at the sole discretion of the Trustee. Note: The trustee’s discretion is absolute to protect the children from creditor claims or claims of their spouses if they marry.
More Resources:
- Practical Tips for Administration of a Florida Trust
- Florida Trustee Checklist