Ask an Attorney – Inheritance & Pre-nup

ask-an-attorney-estate-planning-lawyer-campbellWow! The questions just keep coming! Seems that folks want to ask an attorney questions about things like inheritance, prenuptial agreements, (commonly referred to as a “pre-nup”) and how to balance having enough money for your your Autumn years while giving financial gifts to your family now. Topics like these and the questions that arise every day are why my blog features an ongoing series of posts that answers frequently asked questions and offers real-life examples.

Remember… Knowledge is Power! Feel free to share.

Quick Note: Because every situation is different, the following should be considered “general information.” It is not meant to apply to your specific situation. Please seek the advice of counsel.

Protecting Your Child’s Inheritance

QUESTION: How do I protect my kid’s inheritance in a way that makes sure they get the most money possible from my estate?

ANSWER: There are two ways to get money to the kid. You can save money by doing a simple will, or you can save your estate SIXTY times that amount by signing a Revocable Living Trust. EXAMPLE: Did you know that a simple will may cost $500 to prepare. However, the result is probate of the estate through the court with a cost of about five percent of the value, or $30,000 for an estate worth $600,000.00. Realize that the cost is based on the gross value of the estate. There is no discount for a mortgage or other liabilities.

 

Keep and Use or Gift to Kids Now

QUESTION: Diane, I am 78 years young and trying to balance having enough money on hand for my own needs with giving financial gifts to my kids now. Do you have any sage wisdom on that? Something I might want to consider or a better way to go about it? Would love to know!

ANSWER: The first question is “Why do you want to give money to your kids?”  If it is to pay for schooling, then recognize that while there are scholarships available for students, there are no scholarships for retirees.  If you need to ask the question, then my guess is that you really do not have enough investments and other money to afford both the financial gifts and your own retirement.

Please talk with a certified financial planner to develop your retirement plan.  The first step is to prepare a budget.  This will tell you the amount of assets you need in order to generate the money you will need to live on.  A good rule of thumb is that you can remove approximately 4% of the value of your assets per year and the money may last for thirty years.  Please see a professional to develop this plan.

Finally, as parents we wish to help our children.  However, it may send the message to them that they are not capable of handling their own finances.  Beware of this trap.

 

The Writing is on the Wall – So Soon?

QUESTION: My daughter’s new husband is a piece of work and I’m afraid that if anything happens to me, the money I have left to her may be misappropriated by him or taken as part of a divorce settlement in the future. Should I be concerned and what can I do about it? Would it make a difference if I had a trust? I am really worried. You may want to know that I live in the San Jose, CA area and my daughter and her husband live in Southern California.

ANSWER: Yes, you are right to be concerned. That motherly instinct is there for good reason! And yes, there are ways you can protect your daughter’s inheritance from her spouse even while she is still married or in the event of a divorce. Laws vary by state; however, since you are all in California, here is what I can say:

Inheritance and property acquired during a marriage are seen quite differently, however, that does not mean that inheritance is immune from being distributed in the event of a divorce. Things can get especially dicey if your daughter’s inheritance is commingled with marital assets in a joint account.

I would need to understand your particular situation in order to advise you on the specifics and you can always use the Free Consultation Certificate if you’d like to talk.  In the meantime, let’s look at a couple things that may give you some peace of mind.

Can you use a Trust to keep your daughter’s inheritance from you in HER hands? A qualified “yes.”, if the trust is for your daughter’s life, with a distribution of the trust to other beneficiaries at her death (perhaps to her children)  Technically, the trust would own the inheritance and the assets would remain in the trust until they were transferred to your daughter. Distributions can be limited to income, a percentage, or whatever you devise.  Your attorney can discuss the various options.  In that case, your daughter might have  access to the assets, but not her spouse, especially if she is the trustee.   In the event of a divorce the inheritance is safe from the spouse because it was never comingled with community assets.

So what if your daughter cannot resist her husband’s pleas? You would name a trustee, other than your daughter or name your daughter as a co-trustee alongside a second, independent co-trustee. The trustee or co-trustees could authorize distributions of the inheritance.  Keep in mind that anything that is actually distributed to your daughter might be subject to her husband’s spending., Only the assets that remain inside the trust (not distributed) are kept safe.

If you cannot arrange for a trust, then at the very least, have your daughter maintain any inheritance from you in a separate account in her name only. She will want to keep extremely thorough and detailed records on how any of the money is spent. Educate her on the consequences of depositing any community earnings or assets into the separate property account.  And if you do not want her husband to benefit, it is up to your daughter at that point to use the money for things that only benefit her or their children.

For anyone who has these concerns prior to a marriage – this would be a great argument for a prenuptial agreement!

 

QUESTION: What is a prenuptial agreement or pre-marital agreement and is it really enforceable? Do you handle them?

ANSWER: A prenuptial agreement is a way for you and your spouse to agree upon the classification of assets owned by each party at the time of your marriage, that is, what is separate property of each of you.

Before you invest too much time into the idea, check with a Family Law attorney who can advise you about enforceability issues down the road. If you have questions about a prenuptial agreement, the first step is to make sure that your estate is in good order. If you live in the San Jose area, you are welcome to use our certificate for a free consultation, otherwise, start with an estate planning attorney in your area to get your estate in order.  I do not prepare Pre-Marital Agreements.  I leave it to the Family Law experts.

Please be in touch if you would like to Ask an Attorney in person. The initial consultation is free. Please call to learn more.

 

estate_planning_living_trust_preparation_losgatos_Diane M. Brown, Esq.
Working every day to keep my clients out of court!
It’s your money… Let’s keep it that way!
Call 408.376.2755

 

 

This blog contains general information and is not meant to apply to a specific situation. Please seek advice of counsel before proceeding as each case is unique.

 

One Response to “Ask an Attorney – Inheritance & Pre-nup”

  1. Sara Linder January 29, 2016 at 5:14 pm #

    Good Morning,

    What a great blog! Informative and engaging.

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