Can I safeguard my children’s inheritance?

You’ve worked hard for what you have and want your children to receive some of the benefits of your labor. A new romantic partnership does not have to get in the way of your goal to leave something behind for the kids. The trick is making your wishes known — by getting them on paper.

Spell out exactly who gets what
An easy way to make sure a loved one receives something you have is to put their name on it. This can be done officially in a few ways.

• In a will — A last will and testament is like a brief list of instructions for how and where you want your assets to be directed. You can name your children and the specifics of what they should receive within your will.

• In a trust — When you set up a trust, assets are held for your beneficiaries by a third-party trustee, which is typically a bank or financial institution. Include specific details for how the assets should be divided, and the trust will carry out your plan. As an added bonus, trusts are private and do not have to go through the probate process.

• As a beneficiary — You can name primary and contingency beneficiaries to your retirement plan accounts and insurance policies. However, if you plan to bypass your new spouse as a beneficiary, you will need explicit permission to do it. Either way, it’s a good idea to make sure your named beneficiaries are up-to-date after a divorce or remarriage.

Pay attention to titles
When you are setting up joint financial accounts, including a mortgage, with your new spouse, how the account is titled impacts inheritance. For example, an account set up as “joint tenants with right of survivorship” will go directly to the surviving account holder upon the death of the other. If the account is set up as “joint tenants with transfer on death,” the proceeds go to a beneficiary instead.

Keep money separate
If you and your new spouse are equally financially well-established, you may prefer to keep money matters separate. Unless you merge ownership, the money and stuff you brought into the marriage can remain “separate property,” while anything earned or purchased after the marriage would be considered marital or community property.

If you want to get very specific about who owns what, a premarital agreement (aka prenup) between you and your future spouse can help clarify in writing what’s “yours, mine and ours.”

Give before you go
If you don’t think you’ll need to tap the cash, you can give an inheritance while still alive. In 2023, you can transfer up to $12.92 million in wealth to your children without having to pay federal gift taxes or estate taxes.

Get professional help

• A financial professional can help you review any obligations you have with your former partner through a divorce agreement.

   

• An estate planner can help you set up a trust, considering any guardianship issues and long-term goals for your children and grandchildren.

   

• An attorney can answer legal questions and help you understand the basics of a prenup and whether you need one.