How to protect your child’s inheritance from their spouse

One concern we hear in the estate planning process is how to protect an adult child’s inheritance from their spouse. Sometimes this stems from a place of animosity or concern over a child’s problem partner. Some people are concerned about divorce-proofing the assets they’ll leave behind for their kids. Still others simply believe that inheritances are best kept in the “family.”

Naming your child alone as inheritor. The most basic option you have is to leave your inheritance to just one spouse. Even if your child lives in a community property state, an inheritance would be considered individual property.
However, once that property becomes “comingled” with other marital assets it becomes community property. Your son or daughter will need to place the inheritance in an account in their name only, and they will not be able to place any new funds in this account. Your child will need to be very careful to keep their inheritance separate and should likely consult with an attorney to ensure they do not inadvertently comingle their property.
Likewise, sometimes the income produced by one spouse’s property can be considered community property. So comingling the income from the inheritance with the inheritance itself could destroy its separate status.
Leaving the inheritance in a trust. As an alternate strategy, you can leave your son or daughter’s inheritance in a trust, naming them as trustee. Creditors, divorcing spouses, and other invaders will not have access to your child’s inheritance to the extent that assets are left in the trust. Again, depending on the withdrawal rights set up in the trust, your child could withdraw funds and comingle them or otherwise use them to benefit their spouse.
If there is greater concern, the trust can be set up with an independent trustee. Such an arrangement limits your son or daughter’s access to the inheritance. Assets can only be dispersed at the discretion of the trustee, so you’d need to be clear about establishing those withdrawal or distribution rights when drafting the trust.
Think carefully before bypassing your child’s partner in your estate plans. Know what you’d like to happen if your child passes away before their spouse. Would you intend to leave their spouse out entirely? Skip them and transfer to their kids? These aren’t always easy questions to answer. An experienced estate planning attorney can help you consider potential what-ifs and plan accordingly.