A revocable inheritance trust is useful in the event of divorce.

Although people do not enter marriage hoping for or expecting a divorce, separations and divorces are nevertheless fairly common.

Going through a divorce takes emotional, physical, and mental energy.

<Understatement?>

It also can be quite expensive in terms of legal fees and divorce agreements.

According to a recent Forbes article titled “Revocable Inheritance Trust: Inexpensive Divorce Protection,” having conversations and making wise decisions upfront can help minimize the loss of an inheritance to an ex-spouse.

A revocable trust can be helpful in protecting an inheritance from division during a divorce.

What can you do?

The best thing to do is to keep your inheritance and joint assets separate.

Period.

The attorney of your ex-spouse will likely argue this commingling makes the assets jointly owned.

Even if you only place the paycheck from your spouse into the inheritance account once, this is considered a commingling of assets.

As a result, it could subject the inheritance to division by the courts.

You could lose half of the inheritance.

Yikes!

If you only made a mingled deposit once, you may be able to make a defense of this happening by accident and rectify the situation.

Another defense could be to identify the means of transfer.

You should keep the wire transfer or deed for gifted real estate as evidence the inheritance was for you rather than you and your spouse.

Specific proactive steps you can take to avoid commingling of assets with your inheritance is to document the source of the inheritance or gift, keep the property in a separate account, and even utilize a separate financial institution for holding the inherited assets.

Another option would be to create a revocable trust.

You can retitle the asset to make the revocable trust the owner.

Because it is a revocable trust under your own Social Security number, you can still maintain control as the grantor and the trustee.

A more complex option would be to utilize a self-settled domestic asset protection trust.

In many instances, this type of trust will not be necessary.

Even so, you should ask your experienced estate planning attorney about the differences between the trusts and the best option for you as protection in the event of divorce.

If you are considering the revocable living trust and already have an unfunded revocable trust, it may seem easy to simply transfer these inherited assets into the existing trust.

This is probably not the best idea, especially if your spouse is listed as a co-trustee.

Instead, you should create a new trust for the inheritance and fund the existing trust with the assets you had previously identified for this purpose.

Making adjustments to your last will and testament may also help you confirm that the inheritance has not been commingled and are separate assets in the event of a divorce.

You can use language in your last will and testament to underscore the separateness of your trust from other marital property.

Talk with your estate planning attorney about how to protect your recent inheritance in the possible event of divorce.

Reference: Forbes (April 13, 2022) “Revocable Inheritance Trust: Inexpensive Divorce Protection”