How to Protect an Inheritance from Divorce, Creditors & Lawsuits

You've worked hard to build your estate. The last thing you want is for that wealth to be lost in a child's messy divorce, wiped out by a creditor, or consumed by litigation. The good news is that with thoughtful planning, you can provide real protection.

The most effective tool is a discretionary spendthrift trust. Rather than leaving assets outright to a beneficiary, you leave them in trust. A trustee — someone other than the beneficiary themselves — has discretion over distributions. Because the beneficiary doesn't legally own or control the trust assets, those assets are generally beyond the reach of creditors and divorcing spouses.

A few important principles: Timing matters — if an inheritance is given outright and commingled with marital funds, it can lose its separate property status. The beneficiary shouldn't be their own trustee — an independent trustee is essential to maintaining protective benefits. Spendthrift clauses prevent beneficiaries from voluntarily assigning their interest to creditors.

This type of planning doesn't mean you distrust your children. It means you're realistic about the world they live in — one where divorce rates are high, where lawsuits happen, and where financial setbacks are common. An inheritance unprotected is an inheritance at risk. Contact Fan Law Office to learn how we can help.