How do I protect money gifted to kids if they divorce?

[Car-Guy]

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Originally Posted by pacergal Could you "gift" him the money in a savings account that you are also named, ie joint ownership?

Or maybe in such a case as a house, just gift them the money directly and have them pay you rent on the house that stays in your name. Report the cash gifts (as necessary) on form 709. (It's no big deal)

Example, could you give them 50k a year in cash and report that on form 709. Then they pay you 1k per month rent (fair value) from part of the money you gifted them. But you keep the house in your name so if there is a divorce, the house is not part of their assets.

Purely hypothetical of course since I'm not a lawyer.

[Joylush]

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Originally Posted by jollystomper Parents seem to assume that if their kids divorce, it is the kid's spouses fault, and ask about how to protect money from a potential ex. But the odds are 50-50 that YOUR kid will be the one to cause the divorce. In that case would you feel the same way? As a few others have said, a gift is a gift. No strings attached. Who knows what your kid could have contributed to the marriage dissolution. We often only hear (or are biased) towards ones side of the story.

And the son could be a serial killer but the question wasn’t about be worried or concerned about the son’s character or financial spending skills. It was “how do we protect our gift so it’s used for our son and not lost to an unscrupulous spouse.”

There are several answers: Educate your son on ways to keep his gifted assets separate. Set up a trust with your son as the beneficiary. Don’t gift the money. Gift the money and hope for the best.

[ivinsfan]

Quote:

Originally Posted by Joylush And the son could be a serial killer but the question wasn’t about be worried or concerned about the son’s character or financial spending skills. It was “how do we protect our gift so it’s used for our son and not lost to an unscrupulous spouse.” There are several answers: Educate your son on ways to keep his gifted assets separate. Set up a trust with your son as the beneficiary. Don’t gift the money. Gift the money and hope for the best.

The original question was just about a spouse and didn't use the word "unscrupulous" So they can still be married and the spouse can unscrupulous, or they could be divorced from a perfectly decent person who wasn't the right spouse for them. Maybe they are married to the exact right person who loves them and shares their values.



It's a lot to keep track of...but the options you listed are the same ..The other option would be to leave the money in your will and hope maturity has occurred. The advantage of that is we aren't around to worry about and see what happens. So less stress which is good.

[Sojourner]

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Originally Posted by Time2 I want to even things up with my son as we have paid for my daughter to go to Dental school, $270k to $290k before she is done. He's still single, I'm comfortable he won't spend it, he is working, investing and funding Roth's, so doing well already. Is there a way to protect any money we gift him from a spouse if he should divorce?

My advice would be to open and fund a new brokerage account in your son's name and invest the money in a low-cost, total market index fund. Since he is single, this would be classified as pre-marital assets and generally not subject to division upon a later divorce (although the gains accrued during the marriage might be).

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Originally Posted by Time2 Would it be best to get a prenuptial for any money going into the marriage?

Yes. If/when he does decide to marry, getting a prenup would be very wise to ensure his pre-marital money is protected. The prenup could even be worded to ensure that his pre-marital money plus all gains accrued during marriage would remain his upon divorce.

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Originally Posted by Time2 What about protecting gifted money after the marriage.

Once it's his money, there is absolutely nothing you can do to prevent your son from withdrawing and spending any or all of it on things that would benefit your future DIL.

[brett]

Don't know. Years ago my grandfathers brother (a canny Scot) had a daughter who married a pre med student.

He financed them. But...the house he provided for them was not in either of the happy couple's name. The husband had an income but that came from the familiy business as salary. Even the car was belonged to the business. His daughter had no significant income.

Right after med school they divorced. He got nothing. House was not in either name, vehicle not in either name, and his daughter had no significant income hence no alimony.

Some in the family that he was mean to set it up like this. Turned out he was smart as a fox. Which was why he was such a successful business person.

We intend to help our son and sig. other buy a home. We will place a second mortgage on it. Not because we expect it ever to be repaid.

[Calico]

Parts of this thread remind me of all the myriad ways my grandmother used "gifts" of money to control (or attempt to control) the behavior and life choices of several generations of her family. It worked on many, but not all, family members.

I noticed this tendency of hers at a young age, and I refused to toe the line just to stay in her good grace$$.

But then I always did have strong opinions, and no fear of expressing them. This did not always end well for me.

She told me years later that she respected the family members who did not live in fear of the money spigot being turned off if they disagreed with her in the slightest way.

We now return to our original programming.

[WestUniversity]

Trying to keep items that are considered a separate estate separate is challenging. Setting up the structure is one thing. Aggressively keeping everything separate is quite another...

[gman1234]

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Originally Posted by pb4uski I think it is a fair question... the gift is intended for their son... and not 50/50 for their son and a potential future spouse (who they may or may not like). I think you could put it in a trust an make him the sole beneficiary. https://www.barrons.com/articles/why...rce-1458967051 Or you could keep it an put it aside in an account that he is the sole beneficiary of when you pass, but if you pass while he is married then I think those would become marital assets and defeat the purpose.

I don't think that's true - at least not everywhere. I have gone through two divorces and while married, I received money from two different sources (mom and dad). I was told that as long as I don't comingle the funds, it would stay my property - not joint. Though in my case it wasn't enough to worry about...

[daytripper]

We use a bloodline trust.
It follows our bloodline.
It passes our estate on to our son, his kids and by passes his wife.
Any trust attorney should be able to do this for you.
It is not that uncommon.

[frances]

I'm in the camp of "a gift is just that - a gift".
Once you give someone something it's theirs to do with as they see fit. Period.

[Texas Proud]

Quote:

Originally Posted by pb4uski I think it is a fair question... the gift is intended for their son... and not 50/50 for their son and a potential future spouse (who they may or may not like). I think you could put it in a trust an make him the sole beneficiary. https://www.barrons.com/articles/why...rce-1458967051 Or you could keep it an put it aside in an account that he is the sole beneficiary of when you pass, but if you pass while he is married then I think those would become marital assets and defeat the purpose.

Most states are separate property states so it will remain separate property.... for Texas it is also considered separate as long as you keep it out of a common account...

[imnontrad]

If you gift money/equities to a child and they NEVER co-mingle the gift, their spouse has no claim on it as a joint asset. That's how I protected my gifts from my parents during my divorce.

[euro]

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Originally Posted by frances I'm in the camp of "a gift is just that - a gift". Once you give someone something it's theirs to do with as they see fit. Period.

I agree with this and similar answers. Don't attach strings to gifts.

[Joylush]

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Originally Posted by euro I agree with this and similar answers. Don't attach strings to gifts.

Yet there is a difference between attaching strings to a gift and teaching someone how to protect it. A big difference.

[2177V]

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Originally Posted by Time2 We got burned when we funded a SIL's IRA contributions and my daughter divorced him. It wasn't a lot, but it left a sour taste. I want to even things up with my son as we have paid for my daughter to go to Dental school, $270k to $290k before she is done. He's still single, I'm comfortable he won't spend it, he is working, investing and funding Roth's, so doing well already. Is there a way to protect any money we gift him from a spouse if he should divorce? Would it be best to get a prenuptial for any money going into the marriage? What about protecting gifted money after the marriage.

It may depend on whether your state considers a couple's assets as "community property". During a divorce, assets are split 50/50. Buying property and have the ownership in your son's name, your name and your own wife's name may be an option. A
50/50 split of his 1/3 ownership share is only 1/6 the value of property. A prenuptial may cause his fiancee to seek another partner and I have seen that situation happen to my sister in law. My sister in law told her fiancee to take a hike and refused to see him again. "Trust" is the foundation of a good relationship. A breach of that trust can end the relationship. Saying "Will you marry me? ...and will you sign a prenuptial?" is not being very romantic and most woman are looking for unconditional love.

[llolly]

Did your DD get 1/2 of the joint net worth? Because if so, she got back 1/2 of your IRA contribution. And if she didn't get her 1/2, then what difference did it make whether you gave the money to her or him, because he would have gotten it anyway?

I don't plan on giving any of my kids such a large gift as you are describing anyway -- if I felt there was such a large difference between kids, then I would set aside a separate account and put that child as sole heir (and gift as seemed appropriate from it during my lifetime).

[Skitso999]

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Originally Posted by SecondCor521 In my state gifts and inheritances which are never commingled are the separate property of the individual and not subject to division in a divorce. Nothing fancy is required, just keep it in a separate account. Some other states have similar rules, but I don't know which ones do and which one's don't.

I agree with this approach. Make sure the son knows not to commingle it!

I agree with your concern about the future daughter-in-law. Its pretty common for the woman (or the man) to wander off to be married to another person, through no fault of the man (or the woman). Keep it away from the in-laws if you have a chance. After you die (tell the son this) tell the son he shouldn't be too willing to commingle those funds!

That lump of money will also be a reason for the original marriage to stay intact! How about that thought?!

[Skitso999]

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Originally Posted by daytripper We use a bloodline trust. It follows our bloodline. It passes our estate on to our son, his kids and by passes his wife. Any trust attorney should be able to do this for you. It is not that uncommon.

This is the type of thing I want to do with both my children after my wife's passing. Divorce is as common as dirt. Protect your children first!

[Time2]

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Originally Posted by Skitso999 I agree with this approach. Make sure the son knows not to commingle it! I agree with your concern about the future daughter-in-law. Its pretty common for the woman (or the man) to wander off to be married to another person, through no fault of the man (or the woman). Keep it away from the in-laws if you have a chance. After you die (tell the son this) tell the son he shouldn't be too willing to commingle those funds! That lump of money will also be a reason for the original marriage to stay intact! How about that thought?!

Commingle, how is that defined? Say the un-commingled fund generates $5k of dividends, and the joint account pays the tax bill? Do you need file Married Filing Separate? Can you pull money from the Un-Commingled account, put it in joint checking and use it as a down payment on a joint house? What are the rules of Not commingling?

[Skitso999]

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Originally Posted by Time2 Commingle, how is that defined? Say the un-commingled fund generates $5k of dividends, and the joint account pays the tax bill? Do you need file Married Filing Separate? Can you pull money from the Un-Commingled account, put it in joint checking and use it as a down payment on a joint house? What are the rules of Not commingling?

If the un-commingled account generates taxes, then the taxes from it would be paid out of that same account. Get the accountant to tell you how much tax is due to the un-commingled account. Not a big problem.