You may want to leave a legacy behind, but are worried about what may happen to your child’s inheritance if it gets into the hands of your child-in-law. Sometimes these concerns are based on a lack of trust, an already-volatile familial relationship, or even their influence on your child. Other times, these concerns are not even based on the presence of a rocky familial relationship—you may simply want your money to go to your child only regardless of what may happen in the future.
If I do nothing on my end, are there protections by default codified in state law?
There is not much codified in state law that addresses your concerns. If your child and their spouse were to get a divorce, the divorce judge will take a look at all the couple’s assets and divide them between the spouses equitably.
Why is this? Once you give your child an inheritance and it goes in what will most likely be a joint bank account with their spouse, the assets are mixed together (commingled) and the child’s inheritance becomes marital property. Marital property belongs to both spouses, which is all fair game in a divorce.
The best-case scenario when you leave a gift to your child (but not what most people do) is that your child opens a separate bank account just to keep the inheritance as separate property. If this is the case, your child is set up for a potential confrontation once their spouse is told that they are not allowed to touch that money. If this is where your child finds themselves, you have effectively put yourself in the middle of your child’s marriage after your death. Ultimately, your child may yield to the pressure and end up transferring the money to a joint account and it will become marital property anyway.
What can I do to protect my child’s inheritance?
One of the best things to do is to set up a revocable trust with language included that protects inherited money in the event of a divorce. This is an excellent option to set limitations on the child’s inheritance and can be tailored to your specific wishes.
If you do not want to outright limit your child’s spouse from receiving any portion of the inheritance, you can throw the ball in your child’s court by leaving the trust to them. When you go this route, you are giving your child the option to choose what they believe is best for them. Ultimately, this puts you in a somewhat more neutral position, which may work best for your family dynamic but is not very protective.
Another option is to leave your child’s inheritance in a trust that names a third party as a trustee. If you decide to leave the inheritance in this way, you are effectively limiting your child’s direct access to their inheritance (the trustee can still distribute funds to them or for their benefit). There are several reasons parents choose this route: the child’s spouse is highly manipulative, coercive, or has a poor relationship with money. Whatever your reason, this is a sure way to restrict your child’s spouse from accessing the trust by extension. Some parents will name any grandchildren they have as beneficiaries to the trust. When your child passes, their children will have access to trust assets while still keeping it within the bloodline.
Every family dynamic is different, so your estate plan may include more restrictions or limitations (or creative flexibility) than the standard scenarios outlined above. When it comes to your estate plan and protecting your assets from a child-in-law, consulting with an experienced estate planning attorney is key to include precise language that accomplishes your goals.
Take Control of Your Estate Plan
As you can see, crafting the perfect estate plan that works for you and your family is an essential part of protecting your legacy. If you would like to learn more about how you can make sound planning decisions, we invite you to attend one of Promise Law’s free estate planning workshops. By attending a workshop, you also get a complimentary consultation with one of our attorneys!