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- [00:00]
A
Divorce is one of those things where every single person should have full disclosure into all the assets, all the, you know, beneficiaries. The idea is just people forget that they have these retirement accounts. They grow over time. Your client could have an ex spouse on those. And guess what? Like, it is very hard for the heirs to roll back and try to, like, get their hands on that because beneficiary designations are just a matter of, like, by operation of law, by contract law. Like, the thing will go to where it says it goes.
- [00:49]
B
All right, what is up? And welcome back, everyone, to another episode of the Practical Planner podcast. I'm your host, Thomas Coldman. Here with me is Ann Rhodes, and we have a new guest here today. Her name is Lisa Ligel. She was senior director of strategic growth practice in Illinois at a large law firm called Fager Dinker. I think drinker is how it is, but I'm going to hand off to Lisa to kind of intro who she is, because seems like you'll probably be on some more episodes with us moving forward now that you've joined Wealth. So we're super excited to have you.
- [01:18]
C
Yeah, thanks so much, Thomas. Yeah, I just joined Wealth a few months ago, have been practicing law in Illinois mostly, but I'm also licensed in Wisconsin and Michigan for the last 12 years in trust and estates, so. So I'm senior council strategic growth director for Wealth.com and working on our estate planning platform and super excited to be here.
- [01:40]
B
Love it. I mean, I think it's fine now that as wealth continues to grow, we just have more people internally to kind of pull on and use for different episodes. And so today's episode we're going to get on and talk about is something I think that we've pushed aways and things that are, you know, really common for a lot of the clients that we work with is really just thinking through estate planning and just all around financial planning with. With divorce. And so, Ann, I know this was an episode that you were pretty. I don't know if excited is the right word to talk about here, but it was an episode you felt like was really important. So when, when you were practicing, you know, where does this conversation start? Like, did you start here way before, like, prenups? Is that where the conversation really starts or do we really think just, okay, let's just go down this lens of like, what happens at divorce.
- [02:23]
A
Yeah. So you kind of take your clients as they come, right?
- [02:26]
B
Yeah.
- [02:27]
A
And so I think for most advisors, just like most attorneys, by the time a client has stepped through the door, sign that engagement letter, you know, open their first investment account. They already probably have a marital status that they carry with them. And so mostly they'll come in being married and either having had a prenup. But in the vast majority of cases, I'm sure that the experience is that, no, there is no prenup.
- [02:55]
B
Yeah, it's rare. I feel like.
- [02:57]
A
Yeah, we have a whole podcast episode dedicated to, I think, like, community property and, you know, prenups and postnups and things like that. And so I encourage our audience to go and check that out. But really, I think today it's about, like, assuming that you don't have one of these documents. You know, how do you think about divorce? And it's actually not just the divorce of your clients potentially, which is like one kettle of fish, and we'll address that, but it's actually also the divorce of their children or their beneficiaries. And there actually, your clients, you know, maybe they've undergone a divorce before, they know how messy it can be, or it's just something that they want to consider as part their asset protection planning for their kids inheritances. And that's where they are starting to think about prenups and things like that to protect their kids from, you know, potentially some of these nastier consequences of divorce. And so we'll kind of address both sides. I think there's your client's divorce versus, like, how do they want to protect their own beneficiaries from divorce?
- [04:01]
B
Yeah, I think it's interesting because from what I see, most people do not have prenups. I think maybe coming from the world that you were in, you maybe saw them more often. But I think if you're second gen, like, ultra wealthy, you do. Like, every client I've had that has a prenup was because their parents are super wealthy, and they're like, we need to make sure all these assets are just never going to leave our family. Aside from that, I don't see it as often. So I think in a perfect world, right, people do get a prenup. I think there's a lot of fear towards it of, like, how do we approach the conversation? But it's the same way as starting a business. Hey, like, we don't think this is coming, but let's just have something fair that's agreed upon. I think a lot of times people think, well, hey, I'm, I'm the high earner or I'm a little wealthier. Getting a prenup is to actually just like, make sure. They never get any money. When in reality, it's just like, let's have a set agreement that, you know, we all know going into this. You know, if a client comes in, they don't have it. Maybe the next step is, okay, let's get a postnup, like, at least agree on something. But, you know, now we're transitioning to this side of. We're past all that, divorce is happening. You know, what is the next step? And I think this is. I actually have two clients this year who are getting divorced, and they all come and they think that they're just going to be able to not have to bring attorneys into it. They think we'll just have, like, mediation, everything's going to go perfectly fine. But maybe you guys could talk to this. Like, is that. Does it really go that way pretty much ever?
- [05:24]
A
Lisa, why don't you take a crack at it?
- [05:26]
C
Yes, I would say certainly not. I mean, I've definitely, you know, I've known people that have gotten divorced that in certain jurisdictions that have, like, no contest, you know, very. Almost like a, you know, in our world, more of like a. A summary administration type of divorce proceeding, where they, they come to the table, they have an agreement, they, you know, there's very little to split. Certainly in my experience with my clients, that was not the case. There was definitely plenty to pick fights about and, and get lots of attorney involvement on lots of bill of blowers.
- [06:01]
B
I. I figured as much. I'm curious, though, like, I think that what I found in the financial planning side is what gets really hard is, like, how do we actually. And I don't know if you want to go this route first or somewhere else, Anne, but, like, how do we actually. So, so we go through this, we. We come up with some agreement. How do we actually separate assets and make this work? Like, I think that's the part that people get confused. Like, okay, I have a ton of home equity. Like, how does that work? Right? Like, I have, you know, 401ks. How does that work? Taxable accounts, Maybe that one's like, in, in cash is the easiest. But how do we actually, like, go through this and what happens?
- [06:34]
A
Yeah, so, Thomas, before we get to that question of, like, separating the assets, I think there are, like, several steps even before that that have to occur. And so, and that will guide sort of how judge might oversee or the couple themselves, if they're just negotiating among themselves, you know, come up with that asset allocation. And so, so sort of dialing it back, first and foremost, as an Estate planner, you knew when your clients were getting divorced. And actually, from a legal ethics perspective, I wanted to mention, because this is perhaps, I don't know if there's something analogous for financial advisors, Thomas. And I'd be curious, you know, what your thoughts are. But for an estate planner, it can become particularly dicey when your clients get divorced because fundamentally there are rules of ethics that you have to follow where you know, how you represent a client is usually a one to one relationship. Now, of course, for estate planners, it's a little weird because you're doing estate planning, of course, for a couple, right. And they come in, you know, usually married, things are going well at the time. And so then all of a sudden, you know, your engagement with that couple becomes really fraught because you know certain things about maybe one spouse, not the other, and how you deal with something like that, like secrets among your clients. All of that could actually lead to the lawyer being completely disqualified to work on either client's matter. That's like the worst circumstance. There's a middle ground where as they, you know, don't get along, or one of the spouses comes to you and says, I'm thinking of getting divorced. And usually you're one of the first people that they call because they might be thinking about asset protection and in the worst cases, or not worst cases, but the most sort of, like, sophisticated cases, they might actually be thinking of, like, moving assets around without their other spouse knowing. Like, all of that gets incredibly dicey for the lawyer to the point where you sometimes have to recuse yourself. So I think of a certain.
- [08:26]
B
You let them find their own individual attorneys.
- [08:28]
A
Exactly. So I just wanted to be clear that when we talk about divorce. Divorce. But as estate planners, we're not family lawyers. And very few, you know, from the big law firms, at least very few of the estate planners become family lawyers as well. I think usually those are kind of divided, but we can kind of give you a glimpse into what that looks like because eventually the assets and the way that you split up the assets come back to the estate planners to like, actually, like, find all the assets are, you know, what the character of the property was on the asset, which also depends on the state where your clients lived and, you know, which various trusts were set up. And so we do see how divorce plays out, but we're not actually the ones who are like, elbows deep, you know, like, trying to make the agreement happen. But I will mention, as an advisor, just know that when you go to your estate planner or your clients go to Their estate planners, sometimes they end up, well, for sure, not working on the divorce with the estate planner necessarily, but the estate planner has to maybe even like, leave that relationship because they have too many conflicts to be able to represent each spouse separately.
- [09:39]
B
It's an interesting side for the advisor too, right, because we sign households together. Like, there are the occasion where somebody's like, hair assets are separate. Like, I just want to work with you and that one person. But in general, we do work with, you know, all spouses. But I will say in most cases, you do kind of work with one spouse. Like, I would say of my, you know, hundreds of clients, I've worked with 90 plus percent of them. I really work with one of them. Like, sometimes both come to the meetings, but most times there's one person who kind of is like, I run the finances, the other person kind of runs other part of the life. So, you know, in these situations, it can be hard for the advisor to say, like, you know, my job is to help kind of give information and help you guys facilitate through this. But, like, I can't really give specific advice like, here's how this is going to, you know, how you should make sure you come out ahead or vice versa. I think a lot of our role is, okay, let's help connect you to a good divorce attorney for both of you to help facilitate this. And we'll work with them to help make sure we can separate assets or, you know, what does financial planning look like now that you guys are separate? What house can you afford with the second house? Or, you know, those decisions. But I do think you can get yourself in a sticky situation of like, am I favoriting this the. The earning spouse or the one that kind of drives a relationship, because the other person may not be working with you if not.
- [10:55]
A
Yeah. And I think of, like, awkward situations. And this has happened in my private practice where we get the phone call from one of the spouses, let's call him husband, and he comes and says, I think I'm going to leave wife. Can you start proactively changing my estate plan without her knowing? You know, like. Because if you think about divorce, I mean, from an estate planning perspective, of course, it's huge. You have states where the spouses may have a joint trust, right. And both spouses have to agree to amend the trust before it can be, you know, split up as to, like, either the community property or the joint property. Sure. A spouse can take unilateral action with, like, separate property, but all of a sudden that starts getting into Thomas, your point of. Before you even know what's gonna happen with the separation of the property, like, what do you do about an estate plan where everything's in a joint trust? Right. That becomes really tricky. And then you have spouses that then will say, you know, of course, like, take away all their decision making roles. And usually the spouse is the first person who's named as successor, trustee, you know, as agents on everything, ET etc. So from an estate planning perspective, kind of like, you know, that what is it like mitosis, the cell division, like it's a lot of paperwork and you have to revoke potentially trusts that existed before, if they can be revoked. The trickiest bit, I think from an estate planning perspective are irrevocable trusts. So, Leisa, I'm curious if you have experience or insight into irrevocable trusts that the spouse has set up perhaps for each other.
- [12:33]
C
So, yeah, yeah, that's definitely. I mean, we had. I remember there was a period of time where every single client wanted to talk about slats, which are spousal lifetime access trust. They were like, oh, we've heard slats are so great. We want to do this. And you know, we. Our rule of thumb was always like, okay, let's do a little bit of an assessment of like, what's the sort of health of the marriage, of this, of this. Are they, you know, have they been together for 30 years? Are they, you know, where are they in life? Or is this like maybe a potentially a higher risk marriage? Because a lot of those type of trusts, you know, that's the beneficiary. And whether you're married or not, like, that could still be the beneficiary. So that's always a really tricky subject to broach, especially with like a newer couple where you're like, yeah, so the downside risk is like, number one, one person could die, you know, immediately. And then that portion like drops down into the, the kids, which you may not be ready for at that stage of life. But also like, if this doesn't work out, you know, this is a lot trickier, sometimes impossible to like fully un. So yeah, those were definitely interesting conversations to have.
- [13:39]
A
And as a practical pointer to the financial advisors who might be working with irrevocable trust, like your clients have these types of irrevocable trust for each other. No one really goes into it thinking the clients are going to get divorced, but there are questions that a financial advisor can ask on the front end to just like remind everyone, right? Like, so health of the marriage, super tricky to Ask about. But like, you as a financial advisor belong in that conversation. You have perhaps more history jury with the couple than the estate planner who's stepping in to do like. This type of strategy, number two is just there are ways to define spouse inside the trust so that it's flexible. It's like whoever I happen to be married to at the time. But then the tricky question, Thomas, I know, I see your eyebrows rising, is saying, yeah, is that fair when, like, let's say in California or even other states that are not community property, like, you're taking the joint community property of the spouses and you're having to split them up into his trust for her and then her trust for him. But that definition is flexible. Is that fair to both spouses if, like, one spouse will get remarried and the other doesn't? Right. Like, that's a little bit tricky too, because you've taken something that potentially would have been split in a divorce, like 50, 50, and you're saying, like, well, you get to enjoy this with your future spouse, even forever, and you will have a future spouse versus this spouse. Got half, but can't access it because that spouse doesn't want to get remarried later. That's also kind of awkward. So there are things like that where as a financial advisor, you don't have to understand the nigger of how things are actually defined, but just knowing to even spot the issue and ask when those trusts are being made is helpful on the front end to, like, divorce proof the conversation, if that makes sense.
- [15:35]
B
Yeah, I think it comes back a lot to, like, our role as financial advisors is to share stories honestly of the good of the bad of this. Right? Like, we don't need to perfectly know every single line of a slat, but we need to understand why somebody would use it in the good and the bad. And I think about it and, you know, like, slats are something that's brought up often, but also it's brought up often. It's like a cash balance plan for a client. So somebody might say, like, hey, I've heard I can defer significantly more. And you could just be like, oh, yeah, it's great, you can defer another $200,000, but you need to have the understanding of like, okay, it's going to reduce your profit share. Okay, you have to do it for three years. Oh, you have to go for lower growth. Right. And so when you bring all of this in, they can see, okay, there is some good here, there is some bad here. Maybe this is why it wouldn't Be good for me. And here's the pitfalls of some other clients who went down this route without really understanding that information. You know, that that is really our job here to say, like, hey, a slat could be really good, but, you know, not saying anything is wrong with your relationship. But we've seen people get divorced and here's what ends up happening because of it. You know, maybe you don't really want to go down that route today. And I do think as an advisor, like, we know our clients better than probably almost any other professional. If you're really doing good planning and needs your clients, often you can tell the relationships that are struggling. Like, you might not know if they're getting divorced, but you can tell the way that they, like, look at each other and communicate and talk like that they're at a spot where you need to actually think, like, hey, this could be something that would be, you know, not good. And you potentially have that route in your future. Like, let's make sure we bring up points of why divorce could have an issue here when we're bringing up planning strategies.
- [17:09]
A
Yeah. Because let me tell you, once they are divorced, if there were any conversations that could have been had but they felt they weren't informed enough and nobody brought it up to them, either an advisor or the attorney, that's where like the relationship between you and that client, like, hits the fan and basically like, really hard to recover at that point because it feels like a breach of trust. So it may be awkward to address that during the planning phase and like the creation phase, but it's much better than, you know. So what Lisa and I then have to do is once the clients are divorced, literally comb through all the trusts they've set up all these accounts that you're talking about and seeing like, what are the rights of the spouse and you know, each and oftentimes they're heart baked in some ways. And so then you're starting to do the thing where you're like, trading assets back and forth to make things, you know, equitable or however, you know, things shook out. And the agreement with the court, like the divorce agreement.
- [18:08]
B
I think it's interesting where your mind goes on this because, like, my mind didn't instantly go to like update trust, like update beneficiary designations, like, which is totally makes sense. Right? Like, my mind just instantly goes to like, like assets and how do you handle assets? And that maybe that's like phase one and then phase two is also like, hey, make sure your ex wife or ex husband is not the beneficiary of your blah, blah, blah, or, you know, they're not your financial power of attorney, or they're not your advanced healthcare director. Like, you want to make sure all of those things are updated. But I'm curious, so, like, if an advisor came to you, said, hey, clients getting divorced, like, what do I do? Like, what is my role? How do I step in? How do I help? How do I guide? Like, where. Where do you. Would you advise them to start?
- [18:51]
A
I mean, for an estate planner, divorce is a type of transaction or, you know, event where everything needs to be reviewed with fresh eyes. I'm just going to be honest. Sometimes with like an update to a trust where the client comes to you and is like, I have a new child born, or I think my son is ready to take over a successor trustee. Like, you're like, I don't really need to refresh all, like, the asset, you know, level information. Like, I'll just do a simple amendment for you or something like that. But divorce is one of those, those things where every single person should have full disclosure into all the assets, all the, you know, beneficiaries. If there could be, like, potential new beneficiaries, like, how young are your clients? You know, is it likely that they will get remarried, et cetera, like, everything is on the table again. And I'll say, you know, the beneficiary designation forms often get forgotten. Just like when you do an estate plan today, like, the updates to them, you know, like, people rarely look over those beneficiary designations. As a financial advisor, you should have visibility into that. That is not like reading a trust. This is just reading, like, Vanguard's form. And so I remember in June of 2024. So I'm going to pull up the article in case the audience is interested in the personal finance column of the Wall Street Journal. So this is an article titled June 8, 2024. The title is, His Ex is Getting His $1,000,000 Retirement Account. They broke up in 1989. So in this case, I don't think they were married. But the idea is just people forget that they have these retirement accounts. They grow over time. Your client could have an ex spouse on those. And guess what? Like, it is very hard for the heirs to roll back and try to, like, get their hands on that. Because beneficiary designations are just a matter of, like, by operation of law, by contract law. Like, the thing will go to where it says it go. And it's not like intestacy or some other kind of law. So make sure during divorce that you do involve the estate planner because the estate planner will have to untangle so much of this like joint decision making that happened while the spouses were together.
- [21:08]
B
I think people are always surprised by this side that like somebody would not step in and be like, oh, it shouldn't have gone to them. But like that's, you know, you have to guess on that, right? There are people who would choose to leave stuff to their ex spouse. Like maybe they had a good relationship and they decided like, hey, you know, we've had a great life together, you know, but I think this is the right route for us in the future. So I mean it's an easy way for advisory to add value is just reviewing and ensuring one, beneficiaries are set up, two, they're updated and obviously in this situation, like they're changed if that's the right route. I do want to go down the route of like assets because I know advisors ask this to me all the time of like, hey, divorce happened. I just don't know like how does this work? Does taxable account get split 50, 50 does, you know, what if I have a lot of money in pre tax assets or a CA balance plan or you know, defined benefit plan or things like that. Like how does this actually work?
- [21:59]
C
I can take that. I mean it, it entirely depends on the jurisdiction. It depends on this is all, you know, that the divorce lawyers are going to work out. It's, you know, kind of a default rule in a lot of states is it's not equal necessarily, it's equitable. So the court a lot of times will look at like, okay, we're not necessarily splitting things 50, 50, but maybe we're taking in, you know, contrib, you know, we're thinking about, I can get as granular as like, oh, you paid off this spouse's student loans while you were married. The other one still has these hanging out. So we're going to allocate more assets from this spouse to sort of equalize where we ended up in the long run. So it, it, yeah, it's very hard to predict, you know, you know, going back to the last point too, some things that might be sort of curveballs. I had an estate several years ago where the divorce decree actually said because there wasn't enough cash assets to sort of like get everything equaled out or you know, make it equitable at the end, the one of the spouses was required to take out a life insurance policy and name the ex spouse as beneficiary. So that one was one where you would want a beneficiary designation to still list that ex spouse because it was pursuant to a court order. The reason I was involved was because he died and had not done that. So we actually had to like sue the estate for breach of contract because he had violated that order. Yeah. So it all, it's, it's so case specific, fact specific. So I would say from a financial planner's perspective or you know, the financial planner, the estate planner, it's a little bit of like just hold, you know, try and maintain the status quo a lot of time until you get more clarity, you know, from a settlement agreement or a court order that actually tells you. And they will go very granular, like account by account of like this is what needs to go where.
- [23:48]
B
Because in like a perfect world it's easy. It'd be like you have 200k cash and you have 200,000 in taxable account and you have, you know, home equity and you just take, all right, split it. But it's not like that, Right. Maybe one spouse runs a business and it's like, well that has a value but like you don't really want to give your spouse half the business. So maybe you're potentially giving more of different assets to make up for it. Right. Like that's, it's just not equal across it just. Or hey, we want ex spouse to get to live with the kids in our house because we don't want to uproot the kids. So you might get more of that than potentially investments over here.
- [24:21]
A
Exactly. And what I would say about taxes is what's so difficult about taking into account like the net of income tax like outcome for the spouses is that oftentimes you don't know what those outcomes are going to be because it's hard to predict. Like let's say stereotypically like you have a spouse whose earning potential currently is less just because of the fact that there's an earning spouse or like the earner spouse versus the, not the, the, the one who's not or maybe even a homemaker. And so in that case, like how do you even account for the post tax like outcomes for both spouses? It's so hard to be able to tell today. And a lot of this is just speculative and you just have to explain to the clients like why the allocation of assets made the most equitable, you know, sense. But then they just have to play out their lives once the assets have been allocated.
- [25:14]
B
Does it make it simpler if you are in a non Community property state to be using individual trusts and things like that for the potential divorce or at the end of the day, is it like, you know, still you can just split things? Not, not a huge deal.
- [25:27]
C
I always tell clients, Illinois is a non community property state. I get this question all the time when we're. Because we are a state that definitely defaults to individual rev trusts as opposed to joint rev trust because of our, you know, very low estate state estate tax threshold. And so we get this question all the time of like, well, wait a minute, if I'm splitting up my ass assets and you know, we're putting this account into like my husband's trust, then, you know, what about am I not going to have access to that money if we get divorced? And that's just not the case. It's still, you know, the courts basically look through both trusts and they're just going to say this is the cumulative assets where what was community or what was, you know, marital property versus separate property, like inheritances or things like that. And then they allocate. So it doesn't really matter in terms of the titling when we're talking about revocable trust that way.
- [26:12]
B
Okay. I mean, because I think that's a popular question that gets asked and I feel like in a lot of states like Illinois, I'm from Illinois, I live in Indiana now. But you see individual trust recommended a lot. But I almost see them never like actually ran. Well, Like I was just reviewing a new client I have. They live in Hawaii. They have individual trusts. There's not a single thing in a trust because of it. Like, I think every, every account they have from bank accounts, investment accounts, et cetera is joint. Right. And so I think if they would have probably went on the simpler route, they probably would have actually had these things implemented. But then I think people just get overwhelmed with the idea of like, how do I split these accounts now and then how do I get them into. To the individual trust? And I know there is some value to be had there, but I think for a lot of clients, it's just not something they end up implementing post getting their estate plan.
- [26:57]
A
Yeah. So, Thomas, this can be an episode for another time. And I'd be curious from the audience if this sounds interesting to you, but we have heard a lot of feedback@wealth.com about, like, why do you recommend one joint revocable trust versus two individual revocable trusts? There are a lot of like, myths and other things going on, so we could totally devote a podcast episode. But my personal Sense is the preference by state is actually a preference because of the administration of that trust when somebody dies, not because of divorce, but post death. And the ease in which like your banks and other financial institutions and the probate courts have with working with that structure. Because a joint trust when you die, like there's a portion of that that continues going on, right? Like there's a survivor's trust or something else. And sometimes that like throws off third party institutions like banks in Illino say they're not used to that structure. But in California it would be like a no brainer, of course, because everybody has a joint trust here. So it becomes like, what is that state comfortable with? Because when somebody passes away, like that trust keeps going potentially versus an individual trust where things can be like kind of wrapped up and self contained and isolated.
- [28:11]
B
It totally makes sense. I came at it from an angle of like, do people actually do this correctly? But obviously there's value to be had there and that's why it gets recommended. Okay, what have we not talked about as it relates to divorce that, that we need to know as financial advisors?
- [28:25]
A
I mean, I think it's really just if they're beneficiaries now that your clients are thinking of, or actually maybe your clients who are getting divorced are beneficiaries of trusts themselves. Right. That have some sort of like divorce protection feature. And so there are two ways that I can think of and Lisa, let me know if I'm missing something, but there are two ways in which we talk about divorce protection for like the client's kids. Number one is of course, having some sort of testamentary or irrevocable trust that's formed at their death or even during life, but some sort of irrevocable trust that has asset protection features to it. So they are most commonly called spendthrift trusts. And you can say the assets inside are not subject to creditors being able to reach into it. And creditors usually also means ex spouses. And then the other thing that the structure of those, it's critical for the, for asset protection trusts is that you always want the trustee to have full discretion over distributions, that there not be any sort of mandatory way for the beneficiary to like reach those assets. So like very popular, like back in the day was putting like, let's say a third of the trust into the hands of the beneficiary when they reach 30, and then another, you know, half of the trust at age, you know, 35, and the whole trust terminates at age 40. Like super popular, kind of like mechanism to reduce the size of the trust and eventually give everything to, like, a responsible beneficiary. If you have a structure like that, like, that's not going to work for asset protection whatsoever because that spouse can just kind of wait until the beneficiary has reached those ages. And if the trustee is also the beneficiary and there's no way for a different trustee to be appointed, then all of a sudden the court is just like, hey, like, husband who's getting divorced. This trust that your parents set up for you, you're the only trustee for that trust. Just like, dip into your trust and pay your spouse alimony out of it, you know, so asset protection trusts need to be structured a certain way. And so I just wanted to point that out. And then the second way really is just prenup, like forcing a beneficiary to have a prenup within, you know, the trust language before the beneficiary can continue being a beneficiary. So, Lisa, I don't know, like, in your drafting experience, like, there are a million ways to draft these, but, like, what you would recommend?
- [30:53]
C
Yeah, definitely. We actually, I mean, we. I'm trying to remember what my last one of my partners would call it, like a phantom prenup. But it was basically positions, you know, provisions in the trust like that that you would say, like, you know, you don't know what your, you know, son's, you know, marriage is going to look like or who. Who they're going to end up marrying. So let's put these all in here to sort of protect against the. The back end. But yeah, exactly. As Ann mentioned, you know, having those full, you know, give the trustee the full discret if the kid's going to step in as the successor trustee at some point or we're anticipating that a mechanism that allows them to also step out so that you can have an independent trustee and therefore getting like, the maximum level of asset protection from. For creditors. And then, yeah, just, you know, making sure that we're not forcing stuff to be available if they're, you know, not only in a divorce situation where, like, let's say they're going through. They're in the middle of a messy divorce at age 45, and all of a sudden we have this exposure. But also, like, you know, I always use the example of, like, maybe your kid's a doctor and they're in the middle of, like, medical malpractice lawsuit. You know, now we have a creditor that's going to be looking at, you know everything that's available to them which could be that that trust asset. So yeah.
- [32:06]
A
And anecdotally so just as a practical matter, I will say the clients who started considering doing a prenup clause for their kids sub like trusts ended up really loving it the first time that they had a kid go through it. And actually having to do a prenup because it almost just sets the expectation for everyone, all their kids regard regardless of whether or not we like the in law you're bringing into the family, like everybody's gotta have a prenup. It's not about your choice in mate. It's just how we as a family think about protecting like the legacy that mom and dad have built. And so in some ways it like takes the pressure of that awkwardness right of the conversation away from the kids, puts it on, you know, mom and dad being the bad guys and mom and dad are happy to do this right to play this role. And so for the clients who ended up with these clauses, I think most of of them were like really happy they did it.
- [33:02]
B
I think that makes sense. Going back to what I said earlier about like why we typically only see prenups for basically second gen wealth. And for me I don't see those trusts. Right. I parents trust like for most. I think all my clients that fit into this, they don't know anything about the trust really. Parents have a trust, they don't know how much money is really into it. They had to have a prenup and most likely it was because of that provision in there. And I do think that helps with the conversation because I've had, I have one friend who they have to have a prenup because spouse has, you know, is in a pretty good financial situation and they were very receptive of it. But I know most people are not but I think it is easier. It's like there isn't a choice like if you want to be married into this family, like this is said by the parents, this is said by the trust. Like and I think people understand that when they don't feel like as attacked like you want out of this marriage, you already want to think about getting out. It's no parents have worked really hard. They've built something really special and they just want to make sure that that's protected with our family it's something against you. Everybody does it. But probably good for us advisors to know that as well for some of our wealthier clients to make sure that that is included as well.
- [34:04]
A
It's a tool in your toolbox that you can bring up and hear how the estate planning attorney thinks about it. So.
- [34:11]
B
Totally. Okay, cool. Anything else that you think we need to add before we wrap up?
- [34:16]
A
No, this is a very chipper topic.
- [34:18]
B
Oh, yeah. Super interesting topic. And I think obviously, we all know what divorce rates look like. So as an advisor, this is something that's going to come across your plate at some point. Point. And maybe more than you think. So. And, Lisa, thanks for kind of walking us through this, educating us on it. And everybody, thank you for listening. Hope you enjoyed kind of the the three of us here today. I think we'll do more episodes like this in the future. So see you back in a couple weeks.
- [34:52]
A
Sam.