Getting married is an exciting time for many, but the realities of life can often make some decisions more difficult than others.

The prenuptial agreement is one of the legal aspects couples usually consider before entering the bonds of marriage. It is a written contract that usually specifies assets and debts that each person owns and how they will be distributed if the couple separates. 

Anyone bringing a business or personal assets into the marriage can experience immense financial losses when not planning ahead. A divorce court may split all assets 50/50 if there is no prenuptial agreement in place. 

But is a prenuptial agreement the only way to protect oneself? The answer is no. The reality is that trust can be a much better way of protecting your assets in a business.

What is a trust, and is it safe?

A trust is a legal agreement that gives permission to a trustee (usually a third party) to hold assets on behalf of the beneficiaries. 

A trust should not be a generic agreement. When an experienced organization sets up an irrevocable trust with terms that can’t be changed or terminated, the assets can even be protected from creditors.

Historically prenuptial agreements have been challenged in courts, and in many cases, the prenup was nullified. Even if it is not nullified, it can still cost someone substantial court and legal fees.

In short, a prenup does not always hold up to what it was intended to do. Alternatively, an irrevocable trust can be set up without the other spouse even knowing about it. Many affluent families do this in order to protect their wealth as it is so much more secure.

The benefits of using a trust 

1. It can be set up confidentially

As with a prenup, a trust needs to be set up prior to marriage, but the big difference is that a trust does not need to be signed by both parties to be valid. This means that the spouse does not need to agree with the terms of the trust for it to be legally bound. 

This is because the assets such as property do not belong to one spouse or the other but rather to the trust and are not included in the marital estate.

2. Protection from creditors

Property in a trust is not seen as a personal asset and can therefore not be seized by creditors. The change in ownership thus protects the asset. It is possible for a court to rule the transfer fraudulent if it is established that the transfer was made to deliberately defraud the creditors.

3. Trusts can provide a tax saving

A trust can be irrevocable or revocable, meaning that it can either be amended after they are created or not. An irrevocable trust that is set up correctly and meets certain criteria may be exempt from estate tax after an individual becomes deceased.

It is important to note that assets transferred into the trust may be subject to transfer taxes. Any contributions to the trust are usually seen as gifts, and gift tax may apply. However, the government does allow an annual contribution exclusion of $15 000 for individuals and & $30 000 for married couples after the initial setup.

4. A trust is private

Individuals wanting to keep their financial matters private can avoid the probate process by setting up a trust. A trust is a much quicker way to distribute one’s assets when you pass away.

5. A trust can be flexible

An irrevocable trust can’t be changed, but a revocable trust can change as life and circumstances change around you. Many individuals make amendments to their revocable trusts when they become involved in charities they are passionate about, have grandchildren, or change spouses. 

A revocable trust is flexible and can adapt to the unpredictability of the future.

6. A trust is resistant to contesting

Probably one of the main reasons individuals or families enter into a trust is the protection it offers assets in the case of divorce. Unfortunately, the divorce rate is quite high in the U.S., and an irrevocable trust can mean that family properties and other assets are protected from being lost in a divorce settlement.

Who should consider a trust?

Anyone can set up a trust. It is not only wealthy families or individuals that make use of trusts, but anyone that wants to protect their assets as well as ensure their families are looked after when they die. You should consider a trust when;

  • The inheritance of minor children needs to be protected.
  • Vulnerable or special needs individuals need to be provided for.
  • The estate duty liability can be decreased.
  • The assets need to be protected from creditors.
  • A growth asset for future generations needs to be secured.
  • A surviving spouse needs to be provided for.
  • Privacy of financial matters is important.
  • You do not want assets to be contested in case of divorce.

Final thoughts

Although a prenup is still a popular choice for many couples, it does have a negative connotation to it. Many spouses have fought over the air of uncertainty a prenuptial agreement can create in the marriage. It is often seen as an indication that a spouse expects the marriage to fail. A prenup is also not a guarantee, as courts have nullified many prenuptial agreements in the past.

As an alternative, a trust offers better protection than a prenup if set up correctly by experts. It also comes with tax benefits, and when assets are part of an irrevocable trust, they are secure from judgments by creditors. A trust offers a way to keep financial matters private by avoiding the probate process. 

In the end, the decision lies with the individual whether a prenup or a trust is the best solution for their situation. No matter the strategy, it is always advised to have an open and honest discussion with everyone involved as to the best course of action to take.