Protecting Your Children’s Inheritance From a Future Spouse

When planning for blended families or future remarriage, many clients want to ensure their children ultimately receive an inheritance—while still preserving flexibility and financial security for a surviving spouse. There are several ways to do this, each with different levels of protection, restriction, and ongoing obligation.

One important note up front: many estate plans rely heavily on marital trusts or bypass trusts by default. In our experience, those are often not the best option under current tax law. We regularly design plans using inheritance agreements, which most firms do not offer and which often provide better tax results, lower long-term costs, and a more livable balance between protection and flexibility. If protecting assets for your children is an important issue for you, we recommend you consider this option.

Below is a high-level overview, from lightest-weight protection to most protective.

At a Glance – Trust Options

• Omit Future Spouse Clause – prevents accidental inheritance rights if you remarry

• Direct Gift at First Death – children receive a gift immediately and assets fully separate

• Inheritance Agreement – a binding contract requiring assets to pass to the deceased spouse’s beneficiaries while still receiving a step-up for capital gains

• Bypass Trust – legally separates assets and preserves them for the children

1. Omit Future Spouse Clause (Lightest Protection)

An omit future spouse clause states that a spouse you marry after signing your estate planning documents is intentionally omitted unless you later update your plan.

Why this matters

Under California probate law, if you marry and do not update your estate plan, the law assumes you simply forgot. In that case, a future spouse may be entitled to:

• A share of your separate property, and

• Their community property interest

An omit future spouse clause rebuts that presumption.

What this option does well

• Prevents accidental inheritance by a future spouse

• No ongoing administration or reporting

• No restrictions on how assets are used during life

Limitations

• Does not protect assets once they pass to the surviving spouse

• Provides no enforceable protection for children

Best for:Younger couples who want baseline protection but do not want to take on lifelong contractual obligations to children—especially where all children are shared. (Most people ultimately leave everything to their own children.)

2. Direct Gift at First Death (Clean Break)

With a direct gift, a portion of the estate is distributed to the children immediately at the first spouse’s death. After that distribution, everyone goes their separate ways.

What this option does well

• Simple and easy to understand

• No ongoing obligations between the surviving spouse and the children

• No fiduciary duties, reporting, or enforcement

• Clean emotional and financial break

Tradeoffs to consider

• Often results in less money going to the children overall

• Many families cannot realistically maintain their lifestyle while also making the gift

• Once distributed, assets are no longer protected or coordinated

• Gifted assets do not receive a second step-up in basis at the surviving spouse’s death

Best for:Blended families with ample resources who want certainty for their children but do not want long-term contractual obligations. This option is often considered where there is high family conflict. Some clients use life insurance to fund these gifts.

3. Inheritance Agreement (Best Overall Option)

An Inheritance Agreement is a binding contract between spouses.

It requires the surviving spouse to leave a defined portion—or even 100%—of trust assets to the beneficiaries of the deceased spouse, most commonly their children.

Key features

• Assets remain available to the surviving spouse during life

• Assets receive a step-up in basis for capital gains at the first death and second death

• At the surviving spouse’s death, the agreed-upon portion must pass to the deceased spouse’s beneficiaries

Ongoing obligations

• The surviving spouse is in a long-term contract with the beneficiaries

• Beneficiaries may request proof the agreement is not being violated

• The surviving spouse must share a copy of the trust during life

• A fiduciary duty exists to the beneficiaries, which may be unrealistic in high-conflict families

Unlike bypass trusts, this option allows you to protect more than one-half of the estate.

Best for:Blended families who want strong inheritance protection; older couples who want to prevent elder abuse or undue influence later in life; and couples where one person has more financial experience and does not want the other to gift assets to a future spouse.

4. Bypass Trust (Most Complex; Generally Not Preferred)

A bypass trust (sometimes called a decedent’s trust) is the most complex structure and often comes with higher administrative costs and tax tradeoffs.

At the first death

• One-half of the community property is set aside, and

• The deceased spouse’s separate property is titled into the bypass trust

Those assets are preserved for the deceased spouse’s beneficiaries and generally may be used for the surviving spouse’s health, support, and maintenance.

Protective features

• Assets cannot be redirected to a future spouse

• Separate property goes to beneficiaries the owner selected

• Beneficiaries have enforceable rights to the deceased spouse’s share

Practical considerations

• Requires notice and communication with heirs

• More expensive to administer and enforce

• Disputes frequently arise over what is community vs. separate property

• No second step-up in basis at the surviving spouse’s death unless QTIP is elected

• A QTIP election is possible, but it has costs and strict timelines

Best for:  Couples who feel strongly about their share passing to their beneficiaries; family cabins or legacy property; or situations where significantly more wealth exists on one side of the family and you want that wealth to go to your beneficiaires.   

How Our Plans Differ From Most Other Firms

Most firms rely on standardized trust software and default structures. Our approach is different.

We use inheritance agreements when they are the better tool

Most estate-planning software does not support inheritance agreements, and many firms do not offer them because they are more complex to draft. However, under current tax law, inheritance agreements are often:

• More tax-efficient than bypass or marital trusts

• Less expensive to administer over time (less money paid to attorneys and accountants)

• Easier to live with, with fewer ongoing responsibilities to beneficiaries in standard use cases

For many families, this makes an inheritance agreement the best overall option, even though it is rarely discussed elsewhere.

We do not default to bypass trusts

Bypass trusts are frequently recommended by other firms, even when:

• The goal is elder abuse prevention or protection from undue influence 

• They protect only one-half of the estate and 

• Clients want 100% of assets to pass to their children

• Clients are not advised of the real costs of these plans, the potential for family conflict, and the loss of financial privacy on the passing of one spouse. 

Bypass trusts can also be expensive to administer and difficult to enforce due to disputes over community versus separate property.

We plan for future remarriage

Many estate plans fail to address what happens if someone remarries. We include omit future spouse clauses so a later marriage does not accidentally override your intent or create unintended inheritance rights when requested.

We restrict gifting and preserve protected assets

Many standard trust designs allow unrestricted gifting or spending, which can result in nothing being left for the intended beneficiaries. Our plans commonly include:

• Restrictions on gifting from protected assets

• Assets-of-last-resort provisions requiring other assets to be used first

These provisions are especially important when protection—not just flexibility—is the goal.

Quick Comparison: Inheritance Protection Options

Option	Commonly Chosen By	Ongoing Duties to Children During Life	Second Step-Up for Capital Gains	How Much Typically Goes to the Kids
Omit Future Spouse Clause	Young couples	None	Yes (on assets held until second death)	Uncertain; depends on what remains
Direct Gift at First Death	Blended families with ample resources	None after the gift	No	Usually lower; limited by affordability
Inheritance Agreement	Blended families; older couples concerned about elder abuse	Yes; fiduciary duty, notice, limited information rights by beneficiaries, loss of financial privacy	Yes	High; protected by contract
Bypass Trust	Often recommended by other firms; we only recommend if separate property has sentimental value	Yes; higher costs and complexity to determine community vs. separate property, loss of financial privacy	No	High; assets are segregated and preserved

Final Thought

There is no single “right” answer. The appropriate level of protection depends on family dynamics, financial reality, tax priorities, and how much ongoing connection between spouses and children feels acceptable.

Many estate plans intentionally layer these strategies, combining simplicity where possible with stronger protection where needed.

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