Cecil Harvell discussed the concept and purpose of an in-law trust, explaining it as a contractual trust designed to protect inherited assets from being lost in a child’s divorce. He noted that although inherited property is generally separate under North Carolina law, commingling with marital assets can convert it into marital property, so placing assets into a trust preserves documentation and control. The trust can allow the beneficiary (the child) to receive income and principal, purchase property in the trust’s name, and pass benefits to grandchildren while maintaining the separateness of the inheritance. Selection of a trustee—often a co-trustee sibling or an independent trustee in certain contexts like elective share trusts—is important, and trust companies are less commonly used for smaller “mom-and-pop” estates today. Trusts can be amended, restated, or otherwise adjusted later to reflect changing family circumstances or objectives, and lawyers should tailor trust documents only when there is a clear purpose to justify them.

1. Purpose and concept of an in-law trust

• Definition and purpose: Trust agreement as a contract between settlor and trustee for the beneficiary; in-law trust used to protect a child’s inherited assets from being lost in a future divorce [00:29] [02:35] [06:12].

• Rationale: Parents concerned that leaving assets outright to a child who is married could allow those assets to be contested or divided in a divorce if commingled with marital property [02:35] [04:06] [06:12].

2. North Carolina law and separate vs. marital property

• Legal baseline: Inherited or gifted property is separate property under North Carolina law and generally not divisible in divorce, but commingling can convert it into marital property [02:35] [04:06] [21:34].

• Practical difficulties: Commingling occurs when inherited funds are used for marital purchases (home improvements, mortgage payoff, etc.), making documentation and proof difficult in contested divorces [04:06] [07:20] [12:29].

3. Mechanics and structure of the in-law trust

• How assets are transferred: Instead of passing title directly to the child, assets are placed into a trust (the in-law trust) for the child’s benefit; the child can receive income and, subject to trustee approval, principal distributions [07:20] [07:20] [08:23].

• Trustee and co-trustee options: Children may serve as co-trustees for each other (e.g., siblings co-trustees) to manage and document the trust; trustee choice is an important planning consideration [08:45] [25:21] [26:06].

• Trust as a legal entity: Trusts are separate legal entities (with tax ID) and can hold titled property such as second homes, allowing clear documentation that assets remained trust property rather than being titled in the child’s individual name [15:25] [16:50].

4. Uses and flexibility of trust assets

• Permitted uses: The beneficiary (child) can use trust income or principal for permitted purposes—education of children, purchasing homes, gifting to grandchildren—typically with trustee involvement and within the grantor’s intended control [14:20] [15:25] [16:50].

• Intergenerational transfer: Trust can facilitate passing wealth down to grandchildren while preserving protective structure against divorce or creditor claims [13:34] [17:29] [17:59].

5. Documentation and evidentiary value

• Documentation advantage: Written trust agreement, trust account titles at custodians (Schwab, Fidelity), and transactional records provide strong evidence in divorce proceedings that assets remained separate property [07:20] [11:15] [12:29].

• Divorce litigation context: Divorce lawyers and contested proceedings make clear documentary trails essential; trusts make proving separateness easier than relying on later testimony about commingling [11:15] [12:29] [21:34].

6. Trustee selection and practical considerations

• Independent trustee rules: For certain trusts like elective share trusts, the spouse (beneficiary) cannot be the trustee—an independent trustee is required; identifying an appropriate independent trustee (family member or professional) can be challenging [25:21] [26:06] [28:02].

• Declining role of banks: Historically banks and trust companies commonly served as trustees, but many financial institutions are less willing to accept mom-and-pop trust appointments now unless substantial wealth is involved [28:02] [28:49] [30:20].

• Communication expectations: Trustee should be someone who can communicate with both creators and beneficiaries; for elective-share type arrangements, trustee should be acceptable to the spouse-beneficiary [24:14] [30:20].

7. Amendments, modifications, and estate planning strategy

• Flexibility: Trusts can be amended, restated, or modified (e.g., a restatement or amendment) without recreating entire documents; attorneys often build foundational documents allowing later cost-effective changes [30:52] [30:52].

• Purpose-driven planning: Trusts should not be created “willy-nilly”; trustees and counsel must identify a clear purpose for the trust tailored to client objectives and factual circumstances [00:00] [13:06] [19:24].

• Interaction with prenuptial agreements: Similar to prenuptial contracts, trusts are legal mechanisms to control distribution and protect separate property; elective share and premarital agreements complement trusts as control devices [19:24] [20:31] [23:52].

8. Client examples and practice notes

• Typical client profile: Often higher-net-worth clients (millions) concerned about significant inheritances being preserved for children and grandchildren; these matters arise from real family histories including prior divorces and commingling incidents [08:23] [17:29] [17:59].

• Lawyer’s role: Listening to clients’ factual narratives is essential to craft appropriate trust provisions; attorneys advise on trustee selection, documentation, and drafting to meet clients’ control and preservation goals [06:12] [13:06] [26:06].

Contact and firm information referenced briefly

• Firm and contact: Cecil Harvell of Harvell & Collins mentioned as the guest and contact source; website and phone number referenced for listeners seeking advice (harvellandcollins.com; phone number cited) [12:29] [12:29] [23:52].