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Is an Alimony and Maintenance Trust right for you?

Most people who receive alimony from an ex-spouse get monthly payments, usually for a specified period. However, if the paying spouse has the liquid assets available, the couple may agree to a lump-sum payment.

Getting your alimony all at once can be a good deal for recipients because they don't have to worry about what will happen if their ex loses a job, makes some bad investments or dies. They don't have to go back to court if their ex fails to pay in full or on time. Further, their alimony isn't contingent on them staying single. For spouses without children, a payment up-front can mean that they never have to deal with one another again.

There's another alternative, however, that some people find advantageous if the paying spouse has sufficient assets. It's called an Alimony and Maintenance Trust. In tax nomenclature, it's called a Section 682 Trust. Instead of making the designated payment to the spouse, the paying spouse places assets designed to produce income into the trust, which can be managed by a third-party trustee.

The income that's generated by the assets in the trust is then used to pay the alimony owed. Of course, there's a risk of under-funding or over-funding these trusts, because one can never know what the vicissitudes of the economy and the stock market will bring.

Once the recipient spouse has received alimony for the period of time designated from the income, the other spouse can reclaim the assets. Some people, however, decide to leave the assets in the trust and designate that any income earned go to their children.

If you're considering one of these trusts, it's essential for both spouses to understand the pros and cons. You should discuss these with your attorney as well as experienced financial and tax advisors.

Source: Forbes, "What is an Alimony Trust and Why NBA Ex-Wives Might Wish They Had One," Jeff Landers, accessed Sep. 15, 2017

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