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Protecting Your Children’s Inheritance

Is it possible to protect your children’s inheritance should they get divorced? The concern is that the son or daughter-in-law will receive 50% of the inheritance as part of the divorce settlement. Regardless, of whether the inheritance is prepaid in the form of a gift or paid after the death of a parent, it is possible to safeguard assets from a future divorce settlement.
Before discussing how the assets can be safeguarded, it is important to understand the concept of net family property. In simple terms, it is the value of the property that is owned on the date of separation less any assets owned at the date of marriage. This amount is adjusted for debts that existed at separation. When the marriage ends, each spouse calculates their net family property and makes an equalization payment to their former spouse of 50% of their family property. These rules ensure any increase in the value of the property during the marriage is shared.
If the parents do not make special provisions, any inheritance received by their children would be included in family property and 50% of the amount would be shared should the child’s marriage end. In order to protect their inheritance, certain steps must be taken. Gifts and inheritances will be excluded from a spouse’s net family property if they were received from a third person, such as a parent, after the date of the marriage and the individual making the gift states the assets are for their child alone and not to be considered as a gift to both spouses. Any increase in the value of such gifts is not shared. If the inherited assets are eventually sold, the proceeds should also be excluded from their child’s net family property.
This strategy may fall apart if the inheritance is intermingled with family assets and eventually lose their identity. This strategy can also be implemented as it relates to gifts. The gift should be documented and it must state the assets are for the exclusive use of your child.

Bottom Line – It is possible to protect your children’s inheritance in case of divorce but enlist the aid of a lawyer to ensure your will accurately reflects your wishes.

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