21 Aug How do I protect my niece’s inheritance from her husband?

Q. I plan to leave most of my estate to my niece, but I do not want her estranged husband to be able to get his hands on any of the money. They are not getting divorced “because of the child.” What is the most economical way to do this? They live in Missouri and may be moving to South Carolina. I am a New Jersey resident.
— Uncle

A. You’re going to have to be proactive to make sure the funds go where you want them to go.

First, though, your niece’s inheritance will be subject to the New Jersey inheritance tax.

The tax is assigned based on the relationship of the deceased to the beneficiary, and in this case, your niece’s inheritance would be subject to an inheritance tax of 15 to 16 percent, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

She said the tax is assessed because you are a New Jersey resident, regardless of where the beneficiary resides.

You can leave the assets to your niece outright or in trust, Romania said.

“The laws in both Missouri and South Carolina, like New Jersey, provide that unless the parties otherwise agree, upon divorce there will be `equitable distribution’ of the parties’ marital property,” Romania said. “Marital property generally does not include the property a person received by gift or inheritance provided he or she did not co-mingle it with marital property.”

So, Romania said, the most economical way to transfer property to your niece is to leave it to her in your will with instructions for her to keep it separate and apart from her marital property.

However, an outright bequest may not be the best way to leave property to your niece notwithstanding that it is perhaps the most economical method for you, she said.

By leaving the inheritance in trust, you will make certain the property is not commingled with marital assets, she said.

“Moreover, if the trust is properly prepared, the income from the trust will likely not be used to decrease any support your niece may otherwise be entitled to from her spouse, should they divorce in the future,” Romania said. “The trust can also protect against other events, such as by directing to whom funds should be paid upon the premature death of your niece.”

This would further prevent her estranged husband from ever being able to make a claim against the funds, she said.

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This story was originally published on Aug. 21, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.