If you are creating an estate plan and want to leave that inheritance to your grown children, there are a number of ways you can do it. However, an inheritance plan can be thrown off by a child who gets divorced after receiving the inheritance. Many parents do not want to see the inheritances they passed to their children become diluted by being divided between a child and the child’s former spouse.
In California, divorcing couples will divide community property equally between them unless they have a prenuptial agreement in place that states otherwise. Inheritances are not considered part of a couple’s community property, but if those inheritances increased in value during the course of the marriage, the court may divide that value as community property. In addition, if the inheritance is commingled with community assets, it may be treated as community property.
If you’re worried about the potential dilution of inherited assets that you pass to your children who later get divorced, one good way to prevent this from happening is by creating a trust that distributes the money instead of directly passing it to the child. However, structuring the trust to ensure that the court does not see the trust property as a clear inheritance can be difficult. The trustee of such a trust must have wide discretion as to how that property is distributed, must act independently, and must not be, for example, a different child of the couple.
If you are currently creating an inheritance plan and want to know how the potential divorce of a child could impact your choice of inheritance, consult with an experienced and qualified estate planning attorney who knows how to establish the proper trust that suits your needs.