Modern Estate Planning Blog

An unexpectedly common problem that Sacramento County estate planning lawyers encounter is how the proceeds of an estate are handled when the beneficiary gets divorced. We don’t want to think of our children dealing with the pain of a divorce, but losing the inheritance you left behind would certainly pour salt in the wound. That’s why more estate planning lawyers are working to help clients ensure that their children get what should rightfully be theirs.

Each state has its own rules regarding what happens to inherited funds in the case of a divorce, so you want to be sure to do your planning with a knowledgeable Sacramento County estate planning lawyer. While the need to build in some safety mechanisms may be more obvious when you don’t like your son- or daughter-in-law, it’s important to remember that the future is uncertain and the only constant is change. Having a contingency plan in place just makes sense.

Why is this a big deal? Take the example of a fictitious California couple. The wife inherits $100,000 from her parents. According to estate planning law in many states, the $100,000 will probably be protected in the case of a divorce and will revert to the wife. On the other hand, if that money had been invested in some way that caused it to grow, anything over the initial $100,000 could be considered marital property and be subject to divorce procedures.

One of the ways that an estate planning lawyer in Sacramento County will likely suggest avoiding this outcome would be to create a well thought-out trust. In order to do this, the trust would be structured in a way that allows the child ongoing access to the funds but also limits his or her “ownership” of them, therefore keeping them from becoming marital property. There are different means an estate planning lawyer can use to reach this goal, such as naming the child as a trustee or co-trustee. Trustees generally have control of the funds but not out-and-out ownership.

Additionally, a good Sacramento County estate planning lawyer may advise you to specify how the funds in the trust may be used, for example for educational purposes, although there are several reasonable ways to structure these requirements. One thing to avoid is a situation where the child receives regularly scheduled distributions, as that money could be considered marital property. Instead, the child should need to request funds from a trustee who is predisposed to provide them.

As with any area of California estate planning law, the topic can be pretty complex, but knowing the right questions to ask of your lawyer can make a big difference in being on the right track.