Protecting an adult child’s inheritance from a possible divorce

On Behalf of | Mar 17, 2024 | Estate Planning |

People in different circumstances have different priorities regarding their estate plans. In some cases, the most important consideration is tax minimization. Other times, people worry about their support needs later in life or the protection of their assets after they transition to living on a fixed income.

For some people, ensuring the appropriate use of inherited resources by their beneficiaries is a leading concern. For example, people may worry about the possibility that a son or daughter-in-law could end up taking advantage of an adult child’s inheritance. Parents usually want their children, not their in-laws, to be their primary beneficiaries.

The decision to leave assets for a child could eventually mean that an in-law gains control over those assets. Particularly when a parent believes that their adult child may eventually divorce, they might have reason to worry about providing a large inheritance. Is it possible to protect a child’s inheritance from the possibility of a future divorce?

Complex circumstances require careful planning

Theoretically, New York state statutes protect inherited resources as the separate property of the individual bequeathed assets by a family member. They are not automatically vulnerable to division should a divorce occur.

However, people who inherit large amounts from their parents while married often make a major mistake. They commingle their inheritance with marital property. Perhaps they deposit the money they inherit in a shared bank account, or maybe they add their spouse to the title of real property that they inherit. In scenarios involving commingling, the other spouse could claim that inherited resources are part of the marital estate if they divorce.

The simplest way to avoid this issue involves eliminating a direct inheritance. If a parent puts resources into a trust for their child, those resources remain the property of the trust until the adult child requests a distribution of assets. If a trustor adds the right conditions and rules to a trust, they can give their adult child access to lifestyle-enhancing resources while simultaneously protecting those resources should the child ever divorce.

Complicated family circumstances are one of many reasons why New York testators may require more creative estate planning solutions, including the creation of a trust. Utilizing the right documents in an estate planning strategy can make a major difference for those who want to leave a meaningful legacy for their loved ones.