How do I make sure my daughter-in-law doesn't inherit from me?

I have again been asked about preventing a daughter-in-law from inheriting anything. This is a very common concern, so even though I've discussed this issue before, I thought I'd respond to it again. What follows is a note from a reader, followed by my response.

"My friend told me that when he and his wife die, they do not want to leave anything to their son's wife, only to their son and any children. Can he make some kind of trust or anything else to ensure that the son's wife would not have access to any inheritance money?"

There are two scenarios to consider here. One is that the son dies before his parents, and the other is that the son outlives the parents.

Let's say that when your friend and his wife pass away, their son has already died before them. Even if they had no will, there is no law that says his wife gets anything. They are under no obligation to leave her anything, as inheritance rules run along bloodlines. Most likely, your friend and his wife would have wills that left their estate to their son, and if he has already died, then leaving their estate to the son's children.

This is the most common arrangement made in wills, and it echoes the way the law of intestacy would deal with the estate in the absence of a will.

The shares of the son's children must be held in trust until the children have reached the age of majority. In the absence of a will, this would happen by law. Your friend and his wife can choose a later age for their grandchildren to receive the inheritance, if they believe that would be beneficial. The trustee of the trust for the grandchildren would be the executor and trustee of the will. The son's wife would not automatically become the trustee of the funds.

There is very little need for your friend and his wife to worry about their daughter-in-law inheriting anything this way.

The more usual circumstances would be that the son would outlive his parents. In that case, the son could simply inherit outright from the parents, as most kids do. If so, the parents cannot control what the son does with the money he inherits. Most married men will leave their estates to their wives, unless perhaps it's a second marriage. The wife then leaves the estate to the children. Once the son receives the funds from the parents, the parents have no say in what he does with the money.

The only way your friend and his wife to avoid this is not to give the funds to their son in the first place. Instead of leaving it to him in their will, they could set up a trust under which the son was a beneficiary. This would likely prevent the wife from receiving anything from the trust in the event of a divorce. However, even if there is a trust in place, any funds that come out of the trust and are paid to the son may end up being shared with the son's wife. For example, if the son uses his receipts from the trust to make mortgage payments on their joint home, the parents cannot stop him, nor will the existence of a trust prevent it.

Before setting up a trust for an entire estate for the beneficiary's entire lifetime, your friend and his wife should have a discussion with an experienced estate lawyer so that they understand whether there is really any risk of the wife receiving anything, and they understand how a trust would operate in their case. It's always a mistake to formulate an estate plan around one single, narrow goal, especially when the goal will probably reach itself simply because of the way the law operates.

Trusts are available to assist individuals to achieve their estate planning goals of course, but there are downsides. Trusts often feel restrictive to the beneficiary who receives his inheritance in small allowances and never actually receives the full amount. Also, trusts cost money to administer and must file tax returns annually, so there is no advantage to creating one unless it is really the right tool for the job.