‘My house is paid off’: How do I ensure my son-in-law never gets my money — even if my daughter dies before he does?

By Quentin Fottrell

Dear Quentin,

I am a divorced woman in my 70s. I have accumulated a nice retirement fund and my house is paid off. I will definitely be consulting an estate attorney, but I would like to go in with some knowledge. I would like my estate to go to only my daughter and grandchildren. One grandchild is 20, one is 9 and one is a special-needs child who is 14.

How can I set up my estate so that my son-in-law will never be able to touch it, even if my daughter dies before he does?

Grandmother

Dear Grandmother,

You can do a lot, you will be glad to know, but you have to let go of the reins at some point and leave the rest up to the gods. It’s your money and you are entitled to leave it to whomever you please, but too much control is not good for anyone.

Whatever you leave your daughter would initially be considered separate property, but after that, it depends on your daughter. If she commingles her assets with her husband’s — by investing money in the family home or depositing funds in a joint account, for instance — that money becomes marital property.

By setting up a revocable trust for your daughter — one that you can alter during your lifetime — you can provide an income for her, rather than a lump-sum inheritance. That would help protect her inheritance from her husband.

Unlike probate, which is a public process — the equivalent of airing your laundry in full view of your neighbors — a trust is private. In this case, it keeps your assets away from the prying eyes of your son-in-law. These are conversations you should also have with your daughter.

You can also create a trust for your grandchildren, providing them with lump sums for a down payment on a house, for example, or setting up tax-advantaged 529 accounts to help fund their education.

Third-party trustee

Talk to a special-needs planning attorney about a special-needs trust to help ring-fence funds for your 14-year-old grandchild in a way that won’t affect their Medicaid eligibility. The Special Needs Alliance or the Academy of Special Needs Planners have more information.

“While it is possible to name your child as both the beneficiary and the trustee of the trust, absent additional restrictions, this structure negates the point of establishing a trust for the purpose of preventing spousal commingling,” says Colorado-based law firm Davis Schilken PC.

“To avoid commingling, you can name a third-party trustee to manage the money on behalf of your child. This takes control of the trust out of your child’s hands and places it in the hands of a third party who can use their discretion,” the law firm says.

“Instead of distributing money from the trust directly to the beneficiary (which raises the possibility of commingling and trust division in a divorce proceeding), the trustee can pay third parties on the beneficiary’s behalf,” it says.

“If the beneficiary needs a new vehicle, the trustee can pay the car dealership directly,” it adds. “Or, for larger purchases such as a home, the trustee could loan the money to the beneficiary. The house would be used as collateral to secure the debt to the trust.”

You obviously have your reasons for wanting to be particularly careful with your daughter’s and grandchildren’s inheritance. Talking to your daughter about the importance of keeping such funds separate may help alleviate some of your concerns.

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