How To Leave A Divorce-Proof Inheritance

It is a mistake to assume your adult, capable children and beneficiaries do not need to receive their inheritance in trust.


Traditionally, people have used estate planning documents, such as wills and trusts, to pass assets at their death to their beneficiaries.  They also use the documents to appoint the Executors and Trustees who will be in charge of their assets.  These documents often included simple distributions which named a surviving spouse as a primary beneficiary and the children as the outright beneficiaries of assets when both parents passed away.  Some parents took the additional step to have a basic minors’ trust added to their wills.

This basic trust planning often required when the inherited assets to be held in trust for the benefit of beneficiaries that are under 25 or 30 years of age.  Upon reaching the appointed age, the child is usually given a complete distribution from the trust.  Once the distribution is made, the assets are subject to the spending habits of the child and exposed to his or her divorcing spouse and all of his or her potential creditors.


Through the use of the Beneficiary Controlled Trust (the “BCT”), you can give your beneficiaries the flexibility to use and enjoy the inheritance that you leave to them while providing them enhanced divorce and asset protection.

The BCT is most frequently set up as a trust within a Last Will and Testament (or Revocable Living Trust) and will only come into effect at the time the creator of the Will or Revocable Trust passes away.  Generally, there will be separate trusts created for each beneficiary named.  Typically, when each beneficiary reaches a particular designated age, often between thirty (30) years and forty (40) years of age, he or she will become the managing trustee of his or her own trust.

How the BCT is different:  Unlike a traditional minor’s trust, as described above, there will never be a mandatory outright distribution to the beneficiary of a BCT.  Instead, the beneficiary will become the interested co-trustee of his or her own trust at the appointed age.  The interested trustee will have the authority to make all decisions relating to the purchase, sale and use of trust assets.  As a practical matter (given the way these trusts are usually drafted) the interested trustee will be able to purchase stocks, bonds, mutual funds, real estate and any other investments that an individual would ordinarily be able to buy for himself or herself.  Additionally, they will have the ability to make decisions on how and by whom the assets owned by the trust can be used.

For example, if they were to purchase a vacation home within the trust, they would be able to use and enjoy the property even though the property is owned in the name of trust.  Increased divorce and asset protection is achieved because these assets would never be placed into the individual name of the beneficiary and will be owned in the trust name.  The trust will operate as a separate legal entity having its own tax identification number.

It is not our intention to keep beneficiaries from enjoying or receiving the assets.  Quite to the contrary, we are enhancing the enjoyment of the assets because the individual’s divorcing spouse and creditors will have a significantly more difficult time reaching them.  The trust beneficiary is often also given the power to remove and replace their co-trustee periodically once they have reached an appointed age.  The power to remove and replace provides the beneficiary significant comfort that they will maintain a good relationship with their disinterested co-trustee.

Divorce Protection Specifically: The BCT, when constructed as described above, can be very effective in safeguarding assets from potential divorce. Assets held in the BCT name, under most state’s laws, will never become a part of the marital estate (which can be divided in a divorce).  Generally, inherited assets will not become “marital assets” unless they are co-mingled, held jointly with a spouse, or are placed into the other spouse’s name.  In some states, it is possible for the divorcing spouse to argue that the amount of growth on the inherited assets during marriage should be subject to a divorce division.  Even this argument will be very difficult if the assets are owned by the trust and not by the spouse individually.  As much as anything, the BCT provides a married beneficiary with a great excuse not to co-mingle their inheritance with their marital assets.

Beneficiaries inheriting assets outright and not in a BCT will most likely take their inheritance and immediately add them to marital assets.  Once that is done, all protections would be lost.


Do not assume that your children are too old to receive assets in trust.  Do not assume that your adult, capable children have no need for a trust.  Inherited assets put in their individual name or in joint names with their spouse will be vulnerable to divorce, law suits and creditors.  An inheritance received under a Beneficiary Controlled Trust will be in a much more safe and protected position so that you can be sure that those assets will be enjoyed by the intended recipients.

Some of the other most common planning considerations are:  Creation of Last Will & Testament, Creation of a Medicaid Asset Protection Trust, use of a Medicaid Compliant Immediate Annuity, qualification of the Family Caregiver Exception, creation of the Caregiver Agreement, Irrevocable Burial Reserve, Monthly Gifting Exception, Elder Law Friendly Financial Power of Attorney, Medical Power of Attorney, Living Will.

Check out our other great articles throughout this site that more specifically address the different ways to protect and preserve your assets.  Click here:  Other Blog Articles to Check Out!

For PA Residents:  To request our informative Elder Law Guides click here:  Request an Elder Law Guide Here!

To keep up to date with changing laws and new planning options sign up for our free newsletter by clicking here:  Free Newsletter Request Here!

For assistance developing a comprehensive estate plan or nursing home asset protection plan in Pennsylvania, please contact Douglas L. Kaune, Esquire at (610) 933-8069 or email him at Doug’s entire practice is focused on elder law, Medicaid application, estate planning, trust planning, estate administration and protection of clients’ assets from nursing home spending and estate and inheritance taxation.

Unruh, Turner, Burke & Frees, P.C. is a full-service law firm which has three convenient office locations in Phoenixville, West Chester and Paoli, Pennsylvania. The firm primarily services clients in Chester, Montgomery, Delaware, Philadelphia, Bucks and Berks Counties, but can represent clients throughout Pennsylvania.