“Divorce Protection Trusts” by Attorney Cristol Wagner (Audio)
Clients often tell us they want to ensure their estate remains within their family regardless of future divorces or blended family situations. One of the biggest concerns for parents is that a child will inherit from them, and then instead of those assets going down the line to their grandchildren, they will go to their child’s spouse or ex-spouse. An experienced estate planning attorney may recommend a divorce protection trust as a possible solution.
A very famous example of this is the Astor family and their fortune. Brooke Astor, the famous American socialite and philanthropist, passed away with a $192 million estate. While most of her estate went to charity, her son Tony received an inheritance of $14.5 million. The tragedy behind this is that Tony was secretly abusing his mother and even manipulated her into changing her Last Will & Testament to his benefit. Tony’s son Phillip was the whistleblower, alerting people to the abuse.
When Tony passed away a few years later, he left his entire estate to his wife Charlene, and her children. His sons, the grandsons of Brooke Astor, were cut out of any inheritance.
One way that we often try to avoid such issues is by leaving an inheritance in a Divorce Protection sub-trust for your beneficiaries. This is also referred to as a Family Access Trust. With this type of planning, your beneficiary would receive their inheritance in trust, but they would be the sole trustee and sole beneficiary of the trust. Meaning, they have full access to the money and can do whatever they like with it. However, the benefit is that it is kept separate from any marital funds. If the beneficiary were to get divorced, they would not have to share their inheritance with their spouse because it is not considered marital property.
The one possible catch, however, is that because that beneficiary has full access to their inheritance, they can take that money and do whatever they like with it. For example, they could take the money out of the trust and put it into a joint account with their spouse, losing that powerful divorce protection. They could also leave that money to whoever they want in their own estate plan. Such as in the example above, instead of leaving the money to their kids, they could leave it to their spouse and stepchildren.
Of course, a Divorce Protection trust cannot protect against the fraud and abuse that was at issue in the case of the Astor family or keep a child from taking all their assets out of the trust and doing what they like with it– but it is a good first line of defense.
If you have significant concerns about what your child will do with an inheritance, other options limit their control even further. If you are interested in Divorce Protection trusts for your children, or other types of more stringent strategies to protect their inheritance for generations to come, please contact the Maryland Estate Planning Attorneys at Sinclair Prosser Gasior to learn more.
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