When you’ve worked hard to accumulate and steward your wealth, it makes sense that you would want to pass it on to your children or grandchildren through your inheritance plan. Is it possible, though, to exclude their spouses from inheriting your assets? It’s a question that comes up frequently, and though a sensitive topic, it’s a legitimate inquiry. Even if you accept and love your kids’ and grandkids’ spouses, there may be common reasons for ensuring your family members maintain financial control. Whether you’re working to develop your inheritance plan, or your current plan leaves this issue unaddressed, know that there are a few mechanisms you can use to ensure that only your children are the beneficiaries of your inheritance plan. Let’s explore them below.
Inheritance Plan: Trusts
A trust is a powerful, flexible instrument that can be very helpful in an inheritance plan. It allows a person to transfer their holdings and cash to a legal entity. Stocks, funds, insurance, retirement accounts, and even intellectual property are valid trust options. A person can start a trust while still alive or stipulate the creation of one in their will.
A parent can set up a “discretionary trust” to make their children sole beneficiaries. With this kind of trust, the parent can dictate exactly who does and doesn’t benefit from the inheritance. It empowers the trustee to exclude spouses from the inheritance plan.
A discretionary trust legally lets your children keep all the assets. In the unfortunate case of divorce, it can ensure the ex-spouse can’t receive any benefits on their own. It can also protect against future legal claims on the trust.
Inheritance Plan: Prenuptial Agreements
Prenuptial agreements — or “prenups” — used to only be associated with the super-wealthy. Now, though, it’s not unusual to see couples in any financial class utilizing them. Even millennials and the older end of Generation Z are making greater use of prenuptial agreements these days.
Generally, a prenup covers all financial aspects of marriage — stocks, real estate, property, and so forth. It mandates the distribution to each member in case of divorce, separation, or a spouse’s death. Since it’s a legal contract, a prenup establishes absolute clarity about marital finances. It’s meant to protect both parties in a marriage.
Legally, a parent or grandparent can’t stipulate the terms of their child’s prenup. However, your child or grandchild and their spouse can set conditions themselves. Those conditions can include directions that only your child receives your inheritance. If you think this might be the right strategy for your family, be sure to discuss it openly with all parties before the wedding legally takes place.
Inheritance Plan: Postnuptial Agreements
In a perfect world, a prenuptial agreement would always be in place to clarify an inheritance plan. However, prenups don’t always get done before the nuptials. Introducing legalese when planning a wedding can be awkward, and it may be that you don’t have time to fully consider the issue prior to the wedding. However, if the happy couple has already tied the knot, it’s not too late. They can still reach an agreement about asset distribution through a postnuptial agreement instead. It achieves the same result as a prenup, just on a different timeline.
Whether it’s prenuptial or postnuptial, it’s never an easy discussion to have. Some may believe planning for a negative outcome is making a self-fulfilling prophecy. Your child or grandchild, or their spouse, may take offense at the idea that something could go wrong in their marriage. Other couples, though, understand the rationale and practicality of making those arrangements, especially when significant assets are involved.
Do You Need Assistance Creating or Updating Your Inheritance Plan?
If your goal is to ensure that only your children or grandchildren inherit your assets, negotiations may be necessary. It’s important for all to understand that trusts and prenuptial and postnuptial agreements aren’t harbingers or bad omens in a marriage. Rather, they are savvy financial tools meant to protect joint family interests.
If you’re creating an inheritance plan and you’d like professional assistance in selecting the best tools to accomplish your goals, we can help. At Principal Preservation Services, we offer comprehensive financial planning, including financial planning services for your estate. Contact us today to learn more and to determine whether our experienced team is the right fit for your needs. We look forward to hearing from you!
