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Monday, October 21, 2013

How can I make sure that my daughter-in-law gets none of my son's inheritance?

Recently I had a conversation with a client I'll call Doris, who told me that she is not particularly fond of her daughter-in-law. Doris's reason for consulting me was to find out how she can leave her estate to her son without her daughter-in-law getting any of it. It might surprise you just how many parents bring up this topic. I encourage my clients to speak openly about any and all concerns that might relate to their estates, and this is certainly one that is mentioned frequently. Because of its frequency, I thought other readers might be interested in hearing about the topic.

The first thing for anyone in Doris's situation to understand is that if you leave your estate outright to your son or daughter, there is absolutely nothing you can say in  your will to prevent him or her from sharing that inheritance with his or her spouse. Also, there is nothing you can say or do to prevent some or all of that inheritance from going to the spouse when your son or daughter dies, or they get divorced. There is nothing you can say or do to prevent that surviving spouse from marrying someone else and leaving the money to his or her new spouse and not to your grandchildren. Once you give money away, you can't control what someone else does with that gift.

That probably isn't what you want. It certainly wasn't what Doris wanted. I thought she might faint when I mentioned her daughter-in-law possibly marrying someone else and the inheritance going to that new family.

So, let's look at a solution.

In Canada, money that is inherited is generally exempt from division if a husband and wife should get divorced. In some provinces, the legislation allows for a clause to be put into a will confirming that any inheritance under the will is not intended to become family property. However, there are two problems with this as a solution to Doris's situation.

The first is that if Doris leaves money to her son and he uses the funds to buy something that is put into joint names, such as a home, the funds are in jeopardy. At best, there would be endless legal wrangling and calculations to figure out whether some portion of the home should be bought out by the daughter-in-law, and at worst the funds would simply be gone. Similarly, the son might spend the money on gifts for his wife such as expensive jewelry, or on vacations for both of them.

The second problem is that this only covers divorce. It doesn't do anything at all in the event that Doris's son dies and leaves his estate to his wife.

The answer to this situation is simply a trust. The inheritance for Doris's son should be placed in a trust when Doris passes away. Nothing needs to be done with the money right now; the trust doesn't get set up until Doris has died and her will comes into force.

When Doris's will is written, she will have the opportunity to decide when and why money will be parcelled out by the trustee to Doris's son. It could be set up so that her son would receive a set amount of money each month or year. However, Doris indicated that she would like to restrict her son's access to funds, and limit him to receiving funds only for emergencies, or for education expenses for Doris' grandchildren. This is easily written into a will; trusts are very flexible.

Using a trust, Doris can ensure that:

  • if her son and daughter-in-law should get divorced, her daughter-in-law won't get half of the funds.
  • if her son passes away, the funds in trust won't go to his wife. Doris wants the trust set up so that on her son's death, any funds remaining in trust will go to her grandchildren.
  • the daughter-in-law will not become trustee of the money for the children. Doris is naming a trust company to manage the trust for her son, and if necessary the grandchildren.

There are always drawbacks to any solution. In this case, the drawbacks may be small compared to what is being accomplished, but it's important for anyone in Doris's situation to know what he or she is getting into. The drawbacks to using a trust to hold the inheritance are:

  • many lawyers charge more to draft wills that have trusts in them.
  • there is a cost associated with paying a trustee to manage the trust, as someone has to manage the money, prepare the tax returns, and send out the payments to the son.
  • most importantly, Doris's son will never receive a large sum of money, and will never have the opportunity to use his inheritance to make a large purchase such as a cabin.

Taking all of these factors into consideration, a trust is the best tool available for this tricky family situation.



8 comments:

  1. Thank you for this. My daughter in law is SATAN incarnate, I hope that my son wises up and gets rid of this evil evil woman before I pass away.

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    Replies
    1. Oh dear. I'm sorry to hear that. At least now you know that a lot of other mothers feel similarly towards their sons' wives.

      Lynne

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  2. I have a daughter-in-law that never invites me to her home and never comes to mine when invited. I have done nothing but help my son and his wife financially, several times. I wish they would get divorced, no problem since there are no children.

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    Replies
    1. I've never heard of anyone wishing that their child would divorce someone just because they won't visit the mother-in-law. I never invite anyone into my home if I can help it, because I just don't like to. In fact, I'm well known for that. I wonder if I married your son?

      Lynne

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    2. Your article is awesome and your response to this comment was hilarious. :-)

      Delete
  3. My brother changed my parents will when they were in their 90s. Originally the will indicated everything should be 50/50 but he changed it to 70/30 (obviously in his favour). He made himself and his wife the executor and trustees of the will. If my brother had died before my parents and my parents were not mentally capable of changing their will, would the 70% still go to his wife?

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    Replies
    1. Your brother could not change your parents' wills, unless he made home-made wills for both of them and forged both of their signatures. Is this what happened? If so, prove it in court and the fake wills will be struck down.

      I don't know why people insist on saying that people changed other people's wills. At most, your brother might have influenced or forced your parents to make changes in his favour. This happens, and if you can prove on the balance of probabilities that it happened to your parents, the wills would be struck down.

      To answer your question, if your parents pass away with the 70/30 will in place, and your brother has already passed away, it's highly unlikely that his share would go to his wife. In Canada, wills tend to be built around bloodlines, so if your brother has passed away, his share might go to his children. I say "might" rather than "will" because it depends on what the will says.

      Most wills say that the share of a deceased son or daughter will go to that son or daughter's children. Some say that the share would go to the other surviving sons or daughters. However, not all wills address this so it's impossible to say for sure without knowing more.

      One thing that I can say with relative certainty is that there is no automatic right for an in-law to receive the share. If your brother doesn't have kids or grandkids, his share is going to go to you.

      Lynne

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