When leaving a substantial inheritance to a married adult child, how do you tell them not to commingle those funds with their spouse without it causing problems in their marriage? So far, my daughter and her husband have a solid marriage. They’re in their mid-40s, but of course you never know what might happen in the future. Is setting up a trust the only way?
Related: My father’s widow keeps sending me $200 checks in the mail. Why would she do this?
Dear Parent,
Only a trust will give you control over monetary gifts. Otherwise, it’s in the lap of the gods.
Be realistic about how much control and how many strings you wish to pull after you’re gone. Your daughter and her husband, assuming they’re still together when the time comes, may want to buy a home or renovate their existing house. That will commingle those funds, meaning their new-improved home is marital property.
All inheritance is treated as separate property, unless your daughter puts it into a joint bank account or commingles the money as described above. You can also add your daughter as a beneficiary on your life insurance and other bank accounts and add her on a transfer-on-death deed on your home to ensure that the majority of your assets bypass probate.
All inheritance is treated as separate property, unless your daughter puts it into a joint bank account or commingles the money.
“A trust is one of the most effective tools for ensuring that inherited assets remain separate and protected. By placing assets in a trust, you can provide for your children while shielding those assets from claims during a divorce,” according to Selzer Gurvitch, a law firm based in Bethesda, Md. The trustee, a third party or your daughter, would manage the assets.
“The trust can be structured as a discretionary trust, where the trustee has complete discretion over distributions,” it adds. “This type of trust can ensure that assets are not considered marital property in the event of a divorce. Another option is a spendthrift trust, which prevents creditors, including a divorcing spouse, from accessing the trust assets.”
Looking towards the next generation
A “dynasty trust” would ensure that, in the event your daughter passes away, “assets remaining in a child’s trust may divide into equal shares for such children and continue in separate trusts for those grandchildren,” the law firm adds. “A dynasty trust may also help avoid estate taxes and ensure that your wealth is preserved for multiple generations.”
If your daughter has children, you could also set up a trust to provide for their education and/or set up a 529 tax-advantaged account. The average tuition for an in-state four-year public college is $24,000 and $54,000 for a four-year private school. Americans owe $1.78 trillion in student debt, a figure that has risen by more than 40% over the last decade.
If your daughter has children, you could also set up a trust to provide for their education and/or set up a 529 tax-advantaged account.
Saving money for college can also have an impact that goes far beyond any monetary value, according to this study by the Center for Social Development at Washington University in St. Louis. “Designating small amounts of money for school,” can increase the odds that students of various income groups ever enroll in college, it found.
It’s easy to focus on your son-in-law and obsess about what could happen if they divorced. You obviously don’t want him to walk away with your daughter’s inheritance, but a generous and sensible estate plan should enable you to do so much more. It may even release you from these what-if fears, and allow you to truly enjoy the process.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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