One of the things that I’ve learned over the years, is that clients aren’t sure that their children are happily married. I, therefore, wasn’t surprised when a long-time client of mine indicated to me that she was concerned that her son, Bill, and her daughter-in-law, Hillary, would get divorced in the years to come; and if the divorce occurred after her death, she wanted to make sure that Bill would be able to keep his inheritance.
Fortunately, there are two ways to protect Bill’s inheritance from being lost in divorce. One of the ways is to leave Bill’s inheritance to him in trust (instead of leaving it to Bill directly). By doing so, the trust will be the owner of the inherited assets. If a divorce then occurs, Hillary will have the right to claim a portion of Bill’s assets, but she won’t be able to claim any part of the trust, as Bill doesn’t own of the assets of the trust; rather, he’s only a beneficiary of the trust who may, in the discretion of the trustees, be paid distributions from the trust.
In spite of the fact that trusts protect a child’s inheritance from divorce, a small percentage of my clients are unwilling to establish a trust for their children and insist that the inheritance be paid to their children directly. For clients who fall into this category, I advise them that there’s a second way to protect their children’s inheritances from divorce. Here’s how it works:
- Bill will be paid his inheritance directly.
- If Bill always retains the inheritance in his own name, Hillary won’t be able to claim any of Bill’s inherited assets at the time of divorce.
But, if Bill shares his inheritance with Hillary (for example, Bill uses some of his inheritance to renovate the home that he and Hillary own in their joint name; or Bill uses his inheritance to purchase a vacation home that will be titled in Bill and Hillary’s joint name), Bill’s inheritance will no longer be protected, and Hillary will be able to make a claim to the jointly owned assets at the time of divorce.
So, the moral of the story is: if you’re convinced that your children will always retain the inheritance that they receive in their own name, it’s ok to pay the inheritance to them directly. But, if you suspect that your children will share their inheritances with their spouses, you should provide in your Will that the inheritance will be paid to a trust. Take a look at your Will and see if you’ve established a trust for your children. If not, and you’re concerned about your children losing the inheritance in divorce, you should have your Will revised.
If you have any questions about federal estate taxes please contact Maurice Offit at:
ABOUT MAURICE OFFIT
firstname.lastname@example.org | 301.575.0308 Maurice Offit is an estate planning attorney, co-founder of Offit Kurman Attorneys at Law and a member of the firm’s Management Committee. Mr. Offit counsels a large number of clients who share an interest in minimizing estate taxes and asset protection from the claims of creditors. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.