The Listen to Lawrence Letter: Are my children’s spouses entited to my estate?

CLIENT QUESTION:

My children and, to a lesser extent, my grandchildren are the beneficiaries of my IRA. When the time comes, are my son-in-law and daughter-in-law automatically entitled to any part of that inheritance, whether or not they are still living with my children? If so, is there any way to exclude them from inheriting? Thank you for sharing your knowledge and expertise.

MY RESPONSE:

Many people worry about this question, even when they have wonderful relationships with their sons-in-law and daughters-in-law. The good news is that your children’s spouses do not automatically inherit any part of your IRA simply because they are married to your children.

With very limited exceptions, only the beneficiaries you name on the IRA beneficiary designation form will inherit the account. If your children are the named beneficiaries, they receive the inheritance. If your grandchildren are the named beneficiaries, they receive the inheritance.

In other words, your son-in-law or daughter-in-law does not have an independent legal right to inherit your IRA simply because they are married to one of your children.

However, that is not necessarily the end of the story. Once your child receives the inheritance, what happens next depends on many factors, including how the inherited funds are handled, whether they are mixed with marital assets, and whether your child later divorces. In some situations, inherited assets can become part of a marital dispute.

For that reason, the real estate planning question is often not who inherits the IRA, but how the inheritance is structured and protected after it is received.

The takeaway is that beneficiary designations deserve just as much attention as your will or trust. In fact, for many families, retirement accounts represent one of their largest assets.

Your IRA beneficiary designations should be reviewed regularly and coordinated with your overall estate plan to make sure your assets ultimately pass to the people you intend to benefit.

I hope this helps!