No one expects divorce to be the outcome of marriage. However, with divorce statistics rising, you should consider whether the inheritance you leave your children may one day become the subject of a child’s divorce. If you’re like most parents, no matter how much you may like your son-in-law or daughter-in-law, you still want to make certain that the inheritance you leave to your child is used for the primary benefit of your child (and possibly grandchildren).
If you leave your children’s inheritance to them outright, that inheritance may very well become part of the assets that will be fought over and divided during a divorce. As a result, part (or even all) of your child’s inheritance may be distributed to your ex- son-in-law or ex-daughter-in-law, depending upon your child’s financial affairs at the time of the divorce.
If this outcome is something you would prefer to avoid, regardless of the health of your child’s marriage, then you may wish to do some proactive estate planning. By leaving your children’s inheritances to them in trust (with sufficient creditor protection language in the trust to prevent a spouse from accessing the inheritance), you can proactively prevent a child’s spouse from encroaching on your child’s inheritance during, and even after, their marriage. Regardless of whether claims result from reckless spending habits of a spouse, an accident (such as a car wreck), or a contentious divorce, the inheritance is held separate and protected from the acts of your child’s spouse. Moreover, even though the inheritance is transferred to your child “in trust,” most often your child can serve as trustee and manage the trust fund’s investment and spending decisions. In following, leaving an inheritance to your children in trust generally provides the best of both worlds: 1) creditor and divorce protection for your child’s inheritance and 2) control over money management by the child receiving the inheritance.