What’s the Difference? Prenups vs. Trusts 

May 16, 2022 | Finances, Prenuptial Agreement Lawyers, Prenuptial Agreements

When getting married, most people think only of prenups as having the ability to protect their financial futures. However, did you know there are other options that could complement a prenup? Enter the trust! While commonly used for estate planning purposes, trusts can also be useful in conjunction with prenuptial agreements to plan for your financial future prior to marriage. 

What is a Trust?

Trusts are legal arrangements in which the ownership of certain property is held for the benefit of another – or yourself. The property is intended to pass directly to a beneficiary upon death. All types of assets and property may be included in a trust including real estate, stocks and bonds, vehicles, savings accounts, life insurance policies, and more. 

There are several types of trusts, but we will focus on revocable and irrevocable trusts.  As the names suggest, revocable trusts can be altered over time while irrevocable trusts are pretty much set in stone. A revocable trust can be controlled by the creator of the trust (also known as the grantor or trustor). That way, you can manage your assets and derive income from them during your lifetime while also designating them to pass directly to your beneficiary upon death. 

In contrast, with irrevocable trusts, in many states, you cannot name yourself as the “trustor” or beneficiary. Instead, you must name someone else to manage the trust and must designate beneficiaries. Here’s the kicker: once you’ve set the terms, no alterations to the agreement are permitted (absent a few exceptions). 

With trusts, you are actually transferring ownership of your property or assets to the trust. So, at the end of the day, you don’t technically own any of the property you put into a trust – not directly, at least. You may see where we’re going with this but if you don’t own something, it can’t be divided and distributed upon divorce (in most cases). Hence, why trusts can be a great prenup tool. 

Want to create a trust? Check out Trust&Will, an online resource for everything trust related, and to create one online.

Trusts v. Prenups

So, you may be wondering, what about prenups? Can’t they protect you just as well or better than a trust when planning for marriage? Well, yes and no. One huge advantage that trusts have over prenups is that they don’t require agreement from your soon-to-be spouse. You can unilaterally create a trust in order to protect your separate property. Like a prenup, it should be entered into prior to marriage to best protect your separate property. 

Another big difference between trusts and prenups is that property in a trust is not technically owned by one of the spouses – it is owned by the trust. Therefore, it is not included in the marital estate. Prenups on the other hand, can contractually exclude assets from the marital estate based on the agreement of the spouses. However, actions of the spouses, such as commingling marital and non-marital assets (check out more on financial disclosure here!) or challenging the validity of the prenup can threaten or undue prenup protection.

Trusts also have the added benefit of protecting your assets from creditors as well as providing tax advantages. In addition, they typically don’t have the same validity issues as prenups. In some states, prenups can be invalidated for a host of reasons including if the court considers the agreement to be unfair or if there are changes in circumstances down the road. Spouses trying to have the prenup thrown out can also argue that they signed under duress or coercion. That’s not really the case with trusts.

In comparison to prenups, trusts are often well-suited to your separate property. While you and your future spouse can create trusts for your marital property in the future, those trusts won’t provide much protection in the event of divorce because the trust is not yours alone. You can add property and assets to your non-marital (revocable) trust down the road but be careful not to commingle non-marital and marital assets.

Think you can just create a trust instead of a prenup, put all your separate property in there, and be safe? Think again. Judges in divorce actions have a lot of discretion, and just because property is in a trust, does not mean they won’t attribute income to you as a result, or divide assets disproportionally as a result. The best solution? A prenup, and possibly a trust.

Why You Should Consider Creating a Trust

Trusts provide great protection for your separate property. Here are a few common scenarios where a soon-to-be spouse may want to consider creating a trust: 

  • You received a significant inheritance
  • You have accumulated substantial assets prior to marriage
  • You are getting married later in life
  • You have children from a previous marriage
  • You own a business

In all of the above examples, a trust can be used to protect assets. Trusts can be especially great if you have children from a prior marriage whom you want to protect and provide for. With trusts, you can name your children as beneficiaries of your trust. That way, the trust is protecting the assets during your lifetime, and in the event of death, all of the assets in the trust transfer directly to your beneficiaries – in this case, your children. Win-win!

The great news about prenups and trusts is that you don’t have to choose! In fact, the more the merrier in this context. As mentioned above, using trusts in conjunction with a prenup can help you to create a thorough and rock-solid pre-marital financial plan. 

If you are considering creating a pre-marital trust, be sure to reach out to a trust attorney in your area to discuss your options.

You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
All content provided on this website or blog is for informational purposes only on an “AS-IS” basis without warranty of any kind. HelloPrenup, Inc. (“HelloPrenup”) makes no representations or warranties as to the accuracy or completeness of any information on this website or blog or otherwise. HelloPrenup will not be liable for any errors or omissions in this information nor any use of, reliance on, or availability of the website, blog or this information. These terms and conditions of use are subject to change at any time by HelloPrenup and without notice. HelloPrenup provides a platform for contract related self-help for informational purposes only, subject to these disclaimers. The information provided by HelloPrenup along with the content on our website related to legal matters, financial matters, and mental health matters (“Information”) is provided for your private use and consideration and does not constitute financial, medical, or legal advice. We do not review any information you (or others) provide us for financial, medical, or legal accuracy or sufficiency, draw legal, medical, or financial conclusions, provide opinions about your selection of forms, or apply the law to the facts of your situation. If you need financial, medical, or legal advice for a specific problem or issue, you should consult with a licensed attorney, healthcare provider, or financial expert. Neither HelloPrenup nor any information provided by HelloPrenup is a substitute for financial, medical, or legal advice from a qualified attorney, doctor, or financial expert licensed to practice in an appropriate jurisdiction.

0 Comments

Recent Posts

Can A Bad Marriage Cause PTSD?

If you or anyone you know is currently experiencing domestic violence, please access the National Domestic Violence Hotline at https://www.thehotline.org/, (800) 799-7233 OR text “START” to 88788. “Ugh, that relationship still gives me PTSD”  How many times have you...

Is Gay Marriage Legal In All 50 States?

In 2015, Obergefell v. Hodges, a landmark decision by the US Supreme Court legalized same-sex marriage in all 50 states. This pivotal ruling marked a significant victory for LGBTQ+ rights advocates and underscored the evolving landscape of marriage equality in the...

Melania Trump’s Prenup

Between Trump’s potential run in the upcoming election and his legal battles (i.e., that fourth indictment), Melania Trump has decided to renegotiate her prenup with the former president. Vanity Fair sources say that she is taking the attitude of “not my problem” when...

Ready to join the thousands of couples completing their prenup?