It’s a scenario no parent wants to end up in: Their child married someone the parent didn’t trust, and there will eventually be an inheritance in play. No wonder this question comes up often. The parent would want to make sure the child has full benefit from the inheritance without any of it at risk by their marriage. However, this is a complicated situation; in the end, there’s only so much the parent can do. Here’s what people need to know.
How Does California Law View Inheritances in a Marriage?
On the surface, California law appears to be on the parent’s side. Inheritance is considered the separate property of each spouse, not community property. Community property is what needs to be divided during a divorce.
That said, once the inheritor receives the inheritance, they have full choice of what to do with it. If they keep it as separate property, the inheritance will remain theirs. But if they choose to move the funds into a joint account or use it to improve or add to joint property (home renovation, new vehicles), it’s no longer separate property. The inheritance will be viewed as community property if a divorce happens.
This doesn’t apply just to money. If someone inherits a house in their name only, sells the house, but uses the proceeds to buy a new home that’s listed in both spouses’ names, the inheritance is now community property.
One option would be to have you and the child sit down with an experienced estate planning attorney to discuss how they can protect the inheritance by keeping it as separate property. This might be easier for them to hear from a legal professional instead of a parent. The attorney can also be neutral on the topic of the spouse and focus on the protections the child is entitled to. This could include a discussion of setting up a prenuptial agreement, which could specify that the inheritance is off limits if a divorce eventually occurs.
If the child lives in another state, they’ll be subject to that state’s inheritance and divorce laws, which are often different than California’s. California is one of the few states to be a community property state, which can complicate things.
Would a Trust Protect My Child’s Inheritance from Their Spouse?
The right kind of trust, created at the right time, can provide more protection than a will on its own. If a trust is established before marriage, it’s considered separate property. Again, there’s a risk that once the child receives the funds from the trust, they’ll commingle it in joint accounts, and it will become community property.
There are both revocable and irrevocable trusts, each of which has potential for protecting the inheritance. A revocable trust is held by the person who created it, not the person who benefits from it. The trust holder determines when and how benefits are distributed. If a divorce occurs, the trust isn’t involved, because it’s owned by the trust holder, not the child.
There are also irrevocable trusts, some of which are set up so the trust holder determines when assets will be distributed. Because the beneficiary has no control over the distribution, they aren’t considered the beneficiary’s assets.
Other types of irrevocable trusts stipulate a regular schedule of disbursements. When the beneficiary receives a payment, it automatically becomes theirs, and can be brought into divorce proceedings.
What Are Other Benefits of Trusts?
Besides providing some protection against a distrusted spouse, a trust can also protect the beneficiary from creditors, as the trust owns the assets, not the beneficiary. Trusts also bypass probate court, so the assets can move more quickly and for lower fees. Probate court is a public court, so matters that go through probate are on the public record, while trusts are private matters.
Where Can I Get Help Protecting My Inheritance?
Call us at 949-260-1400 to work with one of our experienced estate planning attorneys. Our Orange County, California attorneys are well-versed in all aspects of estate planning, including inheritance, and can advise you on what needs to be done to protect it.