Short answer: Yes, but it comes with some strings attached.
Longer answer: A well-drafted Trust is a powerful tool for safeguarding your child's inheritance from their potential future ex-spouse. It takes some extra planning, but can be accomplished if you're willing to allocate your child's inheritance to a Trust that will continue for your child's lifetime after you're gone.
When you establish a Trust, you specify how and when your child will receive their inheritance. Sometimes, it's outright. But oftentimes, it's after a particular condition is met, say reaching age 35, or achieving a certain milestone, say graduating with a 4-year university degree.
Additionally, Trusts can include provisions that protect the assets from being considered the community (or marital) property of your child, helping to shield the inheritance from future divorce proceedings. But like every good thing in life, there are some strings attached:
- The Trust usually must be irrevocable, starting at your death and continuing throughout the period of your child's life you want to shield the asset(s);
- The Trust becomes a taxpayer in your child's place, so it usually gets its own federal Taxpayer Identification Number;
- The Trust might require a third-party Trustee -- in other words, your child might not be able to serve as his/her own Trustee;
- If the Trust assets generate income, the Trust must typically file its own federal and state tax returns.
This is not a complete list, but it gives you an idea of where to begin the cost/benefit analysis.
And remember, some states have laws allowing a family court to ignore the Trust, especially if/when your child owes alimony and/or child support. But in many cases, a well-drafted Trust can prevent your child's inheritance from being automatically cut in half in a "no-fault" jurisdiction like California.
If you'd like to create a robust strategy to preserve your child's future inheritance, give us a call (818-707-8200). We're happy to discuss this with you.
[For informational purposes only. May not be relied upon as legal advice. Please consult an attorney to discuss the specifics of your case.]