Though it may sound a bit harsh, the reality is that lots of concerned parents are eager to learn more about how future inheritance money can be used to protect their children and not inadvertently benefit their sons or daughters-in-law.
Divorce is a real possibility and most people would hate to think the money they worked hard to set aside for their children could be divided in a divorce and used to support someone else.
To learn more about inheritance and how it can be structured to benefit your children, keep reading.
MN Estate Planning | Do spouses have a claim to the money?
The most important issue that’s worth tackling is whether spouses have any claim to the money in the first place. Unfortunately, as with most important legal issues, the answer depends on the specific facts of the case. Let’s walk through the possible options.
Inheritance as a separate asset
If you leave money to your child, either while living or after you’ve died, common law says that this money is by default considered a separate asset. This means that the money received by your child is deemed theirs alone, regardless of the fact that it was received during the course of a marriage. So far this sounds like good news, right? Give inheritance to a child, even one who’s married, and the money is considered their separate property? That’s absolutely correct and can certainly work out this way, but there are a few important things that can happen to derail this plan.
Inheritance as a marital asset
So how is inheritance deemed a marital asset rather than a separate one? The first thing that can trigger this is when a child commingles his or her separate money in joint accounts. A good example of this is when your son, John, takes his inheritance check and, rather than deposit in an account in his own name, sticks it in the joint checking account he shares with his wife. When John begins paying marital expenses out of that account, the money ceases to be considered his separate property and is instead a joint marital asset, open to claims by his wife should they ever divorce.
Another way that inheritance money can become a joint asset is if it is used to purchase an asset shared by the couple. For instance, even if John kept his money in his own account in his own name and then used it to write a check to buy a house to live in with his wife, that house now becomes a marital asset.
This amounts to a kind of commingling, and the value of the house paid for out of the inheritance is fair game during the equitable division phase of a Minnesota divorce.
What can you do about it?
Besides using prenuptial agreements to get around the issue of turning inheritance into a marital asset, parents have another tool to shield their money from the in-laws: trust funds. Creating a trust to hold assets on behalf of your children is one good way to keep the money out of their hands and thus, out of your in-laws hands.
The trusts can be set up to pay out money to the benefit of your child, either over time or in several installments. The money located inside a trust is held for the benefit of your child, and is not actually owned by him or her. As a result, the value of the trust should not be included in any divorce.
An experienced Minnesota estate planning lawyer can help walk you through the complicated process of establishing a workable estate plan. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.
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