Alimony Trust

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DEFINITION of 'Alimony Trust'

A legal arrangement where property is transferred to a former spouse as a source of support following a divorce or separation. The payor spouse transfers investments and other assets that generate income into an alimony trust for the recipient spouse or beneficiary. The payor spouse cannot claim an alimony deduction on the income from an alimony trust, while the recipient spouse is taxed on the income but not the principal.

INVESTOPEDIA EXPLAINS 'Alimony Trust'

Alimony trusts are particularly useful in situations where a greater degree of protection is desired, either from the payor spouse or recipient spouse's point of view. For example, the payor spouse may be concerned about the recipient spouse's lack of financial experience in managing a large divorce settlement. Similarly, the recipient spouse may be concerned about the risk of the payor spouse's business becoming insolvent, which may have a detrimental impact on his or her ability to make continuing support payments.

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RELATED FAQS
  1. What does U.S. law say about contingent beneficiaries?

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  2. How do I change my contingent beneficiary?

    Keeping your beneficiary designations up to date is an important aspect of comprehensive estate planning. Listing a primary ... Read Full Answer >>
  3. If both the primary and contingent beneficiaries are unavailable, what happens to ...

    One of the most common mistakes in estate planning is not keeping beneficiary designations up to date on life insurance policies ... Read Full Answer >>
  4. What kinds of assets can be included in a revocable trust?

    A revocable trust is an important part of estate planning. The trust document allows a living grantor to receive income from ... Read Full Answer >>
  5. How do you set up a revocable trust?

    A revocable living trust (RLT) is an arrangement in which a grantor transfers ownership of property through a trust. The ... Read Full Answer >>
  6. What types of insurance policies have contingent beneficiaries?

    A contingent beneficiary is a person designated to receive the benefits of an insurance policy or retirement account if the ... Read Full Answer >>
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