Protecting Your Child’s Inheritance


Many clients worry about their son-in-law or daughter-in-law divorcing their child and walking away with a big chunk of their estate. And why shouldn’t they worry? With a divorce rate in America topping every other country, the chances of your kids having a long and happy marriage are not favorable. The question for today is, can you do anything to protect those assets by proper estate planning?

When you give the inheritance outright to your children after you’re gone, there is nothing you can do to protect those assets.

They’re fair game once control passes from the parents into the hands of your children. Yet almost every estate plan drafted the traditional way delivers the assets straight into the hands of the children, regardless of whether the child is ready for that wealth or not.

Let me give you an example. Susan is the daughter of Bill and Mary Jones. Susan is married to Jason. Bill and Mary never liked Jason, and despite the fact that they love their daughter, they felt like Jason was bad news. Bill and Mary’s estate plan called for an equal division of the assets between their two children once Bill and Mary pass away.

After the assets were divided, each share was handed to the kids, Susan and John, in one lump sum. Once Susan received the money from her parent’s estate, she deposited all the money she inherited in a joint account with her husband, Jason. About a year after Bill and Mary’s death, Susan files for a divorce. How much of Susan’s inheritance will Jason walk away with? For those of you who guessed about half, you’re right. So, in one quick move, one half of Susan’s inheritance is gone, and into the hands of a guy Bill and Mary never liked.

How many of you know a situation like this? Believe me, it happens all the time. Can we keep Susan’s inheritance in the family, even in the face of a divorce? Yes. 

Let’s look at what I call the ‘Family Access Trust’ that holds Susan’s share. Susan is named as the Trustee. That means she has the power to manage all of her assets. Of course, she’s also the sole beneficiary, which gives her the right to spend the money or use the assets any time she wants. You might be wondering, “Why keep it in Trust if she can do anything she wants with it?”

The reason is very simple. All the assets in the Family Access Trust are clearly defined as Susan’s inheritance. They are not commingled with any other assets belonging to Susan and her husband. In the event of a divorce, Susan’s inheritance is not part of the marital estate that the court gets to divide.

A complete estate plan will consider not only how assets get passed to the next generation, but also how to protect those assets so they remain with the people you intended to receive them.

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Colleen Sinclair Prosser
Colleen Sinclair Prosser, formerly the owner and manager of Sinclair Prosser Gasior, Colleen spent two decades at the helm of a busy practice and steered her firm with a guiding hand. Colleen continues to bring a wealth of Estate Planning and Estate Administration experience to the law firm through direct involvement with the clients of Sinclair Prosser Gasior. She has served on the Board of Governors Education Committee of the American Academy of Estate Planning Attorneys, on the Board of Trustees for By Their Side, Lifelong Advocates for Marylanders with Developmental Disabilities and as a Board Member of the Community Foundation of Anne Arundel County.