Strategies to protect your child’s inheritance from their spouse
Are you planning your estate? One key concern for parents is ensuring their child’s inheritance is safeguarded from potential claims by a spouse.
The risk of losing family assets can be a significant worry, whether due to divorce, separation, or financial disputes.
Fortunately, there are legal steps you can take to reduce this risk and protect your child’s inheritance.
In this blog, our lawyers explore some effective strategies that may protect assets. We will help you pass on your wealth with peace of mind.
Key legal strategies for protecting your child’s inheritance
To protect an inheritance, it’s essential to have a clear plan in place. This plan should consider the complexities of family relationships, legal frameworks, and financial risks.
These strategies can minimise the chances of your child's spouse impacting their inheritance in the event of separation or divorce.
Below, we explore five key approaches to pass your wealth down securely.
Family trusts
A family trust is an effective way to protect your child’s inheritance, whether they remain married or separate.
Typically, a family trust is created while the person is still alive. This allows you to transfer assets into the trust during your lifetime.
By placing assets into a trust, the ownership of those assets stays with the trust rather than passing directly to your child.
This arrangement ensures that your child's spouse does not have direct access or control over the inheritance. This applies even while married.
In the event of a divorce or separation, the assets held in the trust are generally excluded from financial settlements, providing further protection.
The trustee, which could be you or another trusted person, manages the assets according to the terms of the trust. This ensures your child benefits without the risk of the spouse laying claim.
For more information on how family trusts can be a part of your overall inheritance plan, read our blog: inheriting property from parents in Australia.
Binding Financial Agreements (BFA)
A Binding Financial Agreement (BFA) is commonly known as a prenup or prenuptial or postnuptial agreement. It's another powerful tool to protect your child’s inheritance.
These legally binding contracts outline how assets, including any future inheritance, will be divided in the event of separation or divorce.
With a BFA in place, your child can clearly define that any inheritance they receive is to remain their sole property. This is regardless of the outcome of their relationship.
BFAs can be arranged before or during marriage and provide protection while the couple remains married.
Testamentary trusts
A testamentary trust is a trust established through a Will. It only comes into effect upon the death of the person creating the Will.
This valuable tool can protect your child’s inheritance. It offers more control over how and when assets are distributed.
Unlike a family trust, which is created during the person’s lifetime and can hold assets immediately, a testamentary trust is activated after death. This ensures the inheritance is passed on under specific conditions.
One key difference between a family trust and a testamentary trust is timing.
A family trust can be used to protect assets during the lifetime of the person who creates it. It offers flexibility and ongoing management of wealth.
In contrast, a testamentary trust is only triggered by the death of the testator. It is governed by the instructions in the Will.
This can include provisions that protect assets from a spouse of the child, and can account for whether the child is currently in a relationship or not.
Another difference is the tax benefits a testamentary trust can offer, especially for beneficiaries who are minors. Income generated by the trust can be taxed at lower rates, offering further financial advantages.
This type of trust is particularly useful in managing large estates or complex family situations where the child’s inheritance needs to be protected from external claims, such as those from a spouse.
The importance of updating your Will
Regularly updating your Will is crucial to ensuring your estate plan reflects your current wishes and family circumstances. Life changes like marriage, divorce, births, and death can significantly impact your Will and how assets are distributed.
Failing to update your Will may leave gaps or outdated provisions.
By keeping your Will up to date, you can account for changes in relationships and family dynamics. This ensures your child’s inheritance remains protected, even if their circumstances change.
For example, if your child marries or separates, revisiting your Will can help you adjust any protections you’ve put in place, such as testamentary trusts or conditions on how the inheritance is accessed.
Review your Will alongside other estate planning tools like family trusts, testamentary trusts or Binding Financial Agreements (BFAs). Ensure they are aligned to safeguard your inheritance from any claims by their spouse.
To learn more about Wills vs. Estates, check out our guide on the differences between a Will and Estate Planning.
Role of financial and legal advice in Estate Planning
Estate planning can be complex, especially when it comes to protecting your child’s inheritance from their spouse.
Every family has its own unique dynamics. It’s essential to seek professional financial and legal advice to ensure these strategies are tailored to your specific situation.
A lawyer experienced in estate planning can help you create a Will, family trust, or testamentary trust that best suits your needs. With professional guidance, you can create the right level of protection for your child’s inheritance.
For more guidance specifically de facto scenarios, check out our post on Estate Planning in de facto relationships.
Secure your family’s future today with expert guidance: Contact Direct Lawyers today
Protecting your child’s inheritance requires careful planning and the right legal strategies.
Whether you’re concerned about a potential separation or just want to safeguard their assets during marriage, having a well-crafted estate plan is essential.
We provide expert advice on creating a Will, Estate Plan, or Testamentary Trust tailored to your family’s needs. Our experienced team at Direct Lawyers is here to help you secure your family’s future!
How to get in touch with Direct Lawyers:
Call our friendly team (07) 3703 1888