Can I Leave Money to My Kids But Not Their Spouses?

You’ve worked hard and saved diligently, hoping to leave something behind for your children. Maybe you’re thinking ahead to grandchildren as well. And while you may love your child’s spouse, it can be natural to wonder how to ensure the family wealth stays with your own child as relationships, marriages, and life circumstances evolve.

At its core, this kind of planning goes beyond money and other assets. It reflects thoughtful decisions today to support the people you care about tomorrow. Let’s learn about the steps you can take so that your legacy flows the way you’d like it to while still respecting family dynamics.

Set up a trust

A trust is a legal arrangement that helps you manage and transfer your money and other assets according to your wishes—both during your life and after your death. So, a trust can be a good strategy to help protect an inheritance and preserve control, especially when it’s drafted and administered carefully.

Each type of trust works differently and may be better suited to certain situations. Experts can discuss the ideal timing for the establishment of your trust. Work with an attorney who understands the relevant federal and state laws, and consult with your financial advisor. What matters most is that your plan reflects your intentions—how you want to support your child, protect what you’ve built, and create stability for future generations.

As you may know, a beneficiary is the person or organization you designate to receive your financial benefits when you die. For example, a life insurance beneficiary receives the death benefit from your life insurance policy after you pass away. When you’re looking to protect an inheritance, a trust can be named the beneficiary of different financial tools, including:

• Investment assets,
• Retirement accounts, and
• Life insurance.

In many cases, your inheritance gets stronger protection when its assets remain in the trust rather than being inherited directly by your child or grandchild. That’s because assets held in trust may be easier to keep separate from marital property, while those distributed directly could become more vulnerable if they are commingled with shared accounts or used for joint expenses.

Trusts are usually drafted with provisions that protect the trust assets from the beneficiary’s creditors (including spouses and former spouses). Unless trust language specifically includes the beneficiary’s spouse or names a child’s spouse as a beneficiary, the spouse usually has no rights to the trust assets. Because the rules vary by state and depend on how the trust is drafted and administered, it’s important to work with an estate planning attorney to structure the trust appropriately.

Trusts name a trustee who will have the authority and power to administer the assets held in trust for your beneficiaries. The terms of the trust will direct the trustee on how much of the income and principal should be distributed to (or for the benefit of) your child. To minimize the access your child’s spouse might have:

• The child can be appointed as trustee—while still keeping the trust assets separate from the spouse.
• The trust can direct the trustee to pay expenses on behalf of your child rather than make cash distributions directly to them.

You can take a similar approach with grandchildren of any age. Another option is a generation-skipping trust that you could use to leave an inheritance to your grandchildren instead of your children. This strategy can have transfer-tax implications, so it should be reviewed with an estate planning attorney and tax advisor.

Have your child establish a prenup

Prenuptial agreements (prenups) are established before a legal marriage to determine who gets what money and other assets (and debt) in the case of divorce or legal separation. And they don’t always carry the same stigma they may have had in the past. In fact, more and more people are using them to set financial expectations and maintain financial security.

Prenups signed by your children can be a good strategy to protect their future inheritance—but their enforceability depends on state law, timing, disclosure, and proper drafting. If a child inherits assets directly, state law generally treats it as their separate property. But if the assets are mixed with marital assets or used by both spouses, they can become “commingled” and potentially lose their status as separate property.

Ideally, prenups specify what happens in a variety of financial situations, such as these:

• Dividing property and assets
• Splitting debt and liabilities
• Setting alimony rights
• Establishing child support standards
• Maintaining business ownership
• Determining what will happen to future inherited assets

Asking your child to include the wealth that you plan to pass on to them in a prenuptial agreement can give you peace of mind. It can help ensure that the money and other assets you leave to your child will stay with them.

Discuss a postnup

A prenuptial agreement must be put it in place before marriage. If your child is already legally married, another option may be a postnuptial agreement (postnup).

These legal documents are similar to prenups except for their timing. As with prenups, enforceability depends on state law and proper drafting.

Raising the topic can lead to a tricky family conversation—but it can help ensure that the plans for your money and assets are carried out.

Providing clarity and not exclusion

Planning how to pass on your money and other assets can bring up questions that don’t always have simple answers.

The strategies in this article—like trusts or agreements—can help provide structure and clarity, especially in situations when life circumstances may change over time.

Because every family and financial situation is different, it can be helpful to talk with professionals who understand both the legal and financial sides of planning. Your attorney and your Northwestern Mutual financial advisor can help you build an approach that fits your goals. Together, you can adapt your approach as your goals evolve.