Elvis Presley, Jackie O, Princess Diana, Ray Charles, Michael Jackson, Martin Luther King Jr., Marilyn Monroe … There is a long and growing list of famous people whose passing created multimillion-dollar tussles over their estates. Estate attorneys and many others have written dozens of books and reams of articles, both about the deliciously sordid details of the litigation and practical advice to the rest of us about how to avoid leaving behind similar problems for our family and friends.
I have written previously about simple and often inexpensive steps that family stewards can take to create and preserve a durable family legacy. But are there other ways to ensure that the inheritance you have worked hard to build and pass on to your heirs really accomplishes your goals? What about ways to protect your children’s or grandchildren’s inheritance from an ex-spouse? How can you work most effectively with your estate planning professional and your financial advisor to ensure that your hard-earned assets go where you intend?
The following are some important things to keep in mind as you think about protecting your family’s interests after you have passed away.
Remember: Communication Is Key
Not surprisingly, one common theme in most of these ideas is the importance of communication. The more clearly you communicate your intentions, both to your future heirs and to the courts — especially by having a well-drafted will and keeping it up to date — the smaller the chances for mishaps when the time comes to distribute the inheritance.
First, communicate to your children — preferably before they marry — the outlines of your estate plan and their part in it. Bear in mind that in virtually every state, assets that are inherited, even during the course of the marriage, are considered separate property and are not subject to division in the event of divorce.
Be Aware of How the Assets Are Structured
This brings up another important point: Your children — and grandchildren, if they are old enough — need to understand the importance of keeping inherited property separate and not commingling the assets, either intentionally or inadvertently.
If the inherited assets are owned in the child’s name only, they are probably appropriately segregated. But if they are held in an account jointly owned by the child and a spouse, they are commingled and much harder to prove as separate property during a divorce proceeding.
Another scenario involves using separate property to purchase or improve marital property, such as a house that is held in the names of both spouses. When inherited assets are used this way, they become commingled, since both spouses share ownership of the home. Alerting your children to these pitfalls can help them maintain inherited property separate from marital property, ensuring they retain full ownership.
Your estate planning professional may, in certain cases, also advise the use of various types of trusts, in addition to the terms of your will, to protect inherited assets from the claims of creditors, ex-spouses, and other persons. This is where a candid, detailed conversation — involving your estate planner and your financial advisor — can lay the groundwork for a solid estate plan that gives you peace of mind, knowing that the benefits you want to provide for your heirs will be granted according to your wishes.
Stay Diversified, Stay Your Course!