My wife and I live in California, as do three of our four adult daughters. We are revisiting our family trust for the first time in many years, as we have grown older and gradually built up a $2 million estate. We want to make sure that if our daughters divorce, our hard-earned savings go to them, not to their ex-husbands.
We consulted with two real estate attorneys and got different answers. The first said that there was nothing we could do to force the inheritance to remain legally separate; The most we can do is put some wording along the lines of “Our desire is for the money to remain separate.” The second lawyer said that we could have our children sign a prenuptial agreement as a condition of their inheritance.
Furthermore, we have one daughter who has been married for five years and has three children; Another daughter just got engaged; And two other single children. Our married daughter does not have a prenuptial agreement. How do we protect our gift to her? Prenup retroactively? How should we proceed?
Father of four girls
Related: 'They are threatening to go to a lawyer: My in-laws gave us $300,000 and they are on the deed to our house. Now they insist that we give our niece $125,000.
“Do not allow this money to become a cudgel to control your daughters’ lives.”
Market watch illustration
Dear father,
Money should bring freedom and opportunity, not control and coercion.
Your intentions walk a fine line between expectations and legitimacy. There is little you can do to prevent your daughters from sharing their inheritance with their husbands, assuming they all marry and some of those marriages end in divorce. It's an honor to have made a few million dollars, but don't let that money become a cudgel in your daughters' lives.
One solution to your problem: You can set up a revocable trust that specifies how your assets will be left to your direct beneficiaries — in this case, your daughters — and which becomes irrevocable upon your death. It can only be used for your daughters and their children, and because it becomes irrevocable after you die, it can't be accessed by your creditors, if you have any. There are downsides. For example, such a trust could, unless otherwise stated, exclude stepchildren and adopted children.
First, the good news: inheritance in California is considered separate property. Whether you leave your children real estate, brokerage or savings accounts, that money will remain non-marital property unless your daughters use it to upgrade their family home or otherwise commingle those assets with their community property. This preempts the need for your married daughter to ask her husband to sign a postnuptial agreement.
However, on this topic, it is not wise to use this inheritance to tell your daughters what they should do during their marriage. There should be clear boundaries between your relationship with your adult children and their relationships with their partners and spouses. It is not good to interfere with the latter. Doing so may cause discord in their relationships and also cause unnecessary hurt and stress in your relationships with your daughters.
“California is one of the few states that strictly adheres to community property laws, which stipulate that assets acquired during a marriage [are] “Community, also known as marital property,” according to Myers Family Law in Roseville, California. “However, even California draws a line when it comes to personal inheritance, including inheritance received during marriage. An inheritance is treated as separate property owned by the individual who received the inheritance.
Legal gymnastics
Requiring in your last will and testament that your daughters receive their share of your estate on the condition that they do not share any of it with their husbands represents a lot of impractical and legal gymnastics. What they do with their inheritance is their own business, unless you place those assets in a trust with strict instructions about how to use those assets — to educate your grandchildren, for example — or use the trust to provide an annuity.
There are a lot of variables out of your control. What if you die before your spouse, and they have different ideas about how to settle your joint property? What if your son-in-law was asked to sign a prenuptial agreement, and he replied, “No way, who does your father think he is?” The best course of action is to educate your daughters on how separate inherited assets are managed, and how they can be mistakenly mixed up.
Think of the good time you had with your family. You don't want Thanksgiving dinner to turn into a battle royale, or worse, a situation where your daughters and their partners gradually withdraw and reevaluate their relationships with you. You've worked hard for your money, and you're trying to protect your family's wealth. But there are times in life when you can only do so much, and hold on so tightly to your family, even if that is not your intention.
Ask yourself some soul-searching questions before continuing. Do you really want to force your children to sign a prenuptial contract in order to receive their inheritance? Prenups can be challenged and changed at a later time. What's more important: the few million dollars you'll leave behind, or the relationships you have with your daughters while you're here? Don't put a price on your daughters' love for you, or on their love for their husbands.
Sorry to be preachy, but even Shakespeare wrote a play about estate planning. He was called “King Lear.”
The Moneyist regrets that he cannot respond to questions individually.
Previous columns by Quentin Fottrell:
“I grew up very poor”: I received an annual bonus. After I pay off my credit card, I'll have $10,000. What should I do with her?
“I received a check for an insurance claim for $22,000”: Why does it take five days for my check to cash?
'I want to protect my family': My wealthy father, 49, is to marry his third wife. How do I raise the issue of inheritance?
