I’m attorney Paul Bernstein of the Bernstein law group. And I’d like to illustrate how to protect the inheritance for your child if they should ever get divorced. Here’s an example.
A story of two families
Let’s talk about two families. We have the Night family and the Day family.
The Night family
The Night family went to see an attorney and they said they wanted to leave everything to their daughter, Susan. So the attorney drafted a simple estate plan with a will. And it said that once both of them passed away, everything goes outright to the daughter, Susan. Simple.
Both Mr. and Mrs. Night passed away. Susan inherited everything. And Susan and her husband decided to use the inheritance to buy a house. So they bought a house together.
Some years later, the marriage fell apart, they got a divorce and Susan’s husband got half the house, half the inheritance. So that was an unfortunate situation.
The Day family
Now let’s talk about the Day family and what they did. They saw a different attorney and that attorney recommended that they leave the inheritance to their daughter, Mary. Not outright but in a trust, a trust that Mary could be in control of. And they liked the idea of that.
So when Mr. and Mrs. Day died and everything went to Mary, it didn’t go outright to her. It went into a trust. Now, Mary was also married, just like Susan was, but in this case, when she and her husband decided to use that inheritance to buy a house, they did it differently.
A different approach to buying a house
So Mary said to her husband, let’s buy a house. And I am going to borrow the money to buy the house from the trust. And the trust is going to be like the bank would be. But we’re not going to get a mortgage through our bank. We have enough money in the inheritance, so the trust will be the bank.
So I’m an attorney who drafted a mortgage, put the mortgage on the property and made very favorable mortgage payments back to the trust. Years went by. They were making payments to the trust, the value of the home increased and the size of the mortgage decreased because they were making payments to the trust. And then their marriage fell apart as well.
How the trust protected Mary’s inheritance
And they ended up getting divorced. But instead of her husband getting half the house, he got half the equity. But the vast majority of the house was protected because that mortgage was in place on that property. But had the trust bought the house, which it could have, her husband never would have felt like he was an owner at all.
By using this mortgage strategy, the husband always felt like he was a co-owner of the house. But we protected the inheritance. I hope this makes sense to you. It’s a very valuable way of leaving an inheritance and one tool to benefit a child who’s married by making sure that she or he and their spouse can own a house, while also protecting the inheritance component.
Be more like the Day family and not the Night family. I hope you found this information helpful. If you have any questions or you’re just not sure what to do, feel free to reach out to us.