Estate planning is essential for those looking to pass down family wealth in an equitable, tax-efficient way. But one aspect many people overlook is the possibility that their assets, whether it's a sum of money or a family home, could wind up in the hands of a child's or grandchild's ex-spouse.
It might feel mean-spirited to plan for the possibility of a divorce among your beneficiaries, but the reality is that a large percentage of marriages end that way. That's why it's critical to think about not just what you'll pass down to your heirs but how.
With that in mind, let's look at ways to help ensure your assets go to—and stay with—their intended recipients.
At-risk assets
One of the easiest ways to transfer financial assets to your heirs is via beneficiary designations, which bypass probate, the often lengthy and potentially expensive legal process used to settle an estate. (Transfer-on-death deeds offer similar benefits for real estate holdings.)
However, even assets solely in your child's name may be fair game in a divorce proceeding. If that asset is used as collateral for a shared loan or otherwise benefits both parties, a judge may consider it when determining alimony or child support. That's true even if the couple lives in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Pre- and postnuptial agreements could help, but you may not feel comfortable requesting that type of action from your heirs and their soon-to-be or current spouses.
Another way
A carefully crafted trust can go a long way toward mitigating the risk that all or part of your assets end up in the wrong hands—particularly with estates that span multiple generations. A lot of people focus on children, but they forget about grandchildren and whom they might marry. In that context, a trust with the right provisions can give you greater control over who gets your assets and when.
It's also important to consider the state in which the trust will be administered after your death. You can direct the trust to be administered in any state, regardless of where you reside, provided your trustee, or trust administrator, is located there. Trustee selection matters and can contribute significantly to the security and preservation of your legacy. For example, Alaska, Nevada, Rhode Island, South Dakota, and Tennessee allow courts to shield assets in a trust from claims that arise in divorce proceedings, including alimony and child support.
However you choose to proceed, it's essential to think through all potential scenarios with the help of an estate planning attorney, who can help ensure your heirs' inheritances are protected for years to come.
Schwab Personal Trust Services
Professional trust management can help give you options for the future.
A corporate trustee provides financial expertise, unbiased decision-making, and fiscal responsibility for the duration of a trust. For example, Schwab Personal Trust Services, administered by Charles Schwab Trust Company, will:
- Administer your trust according to your wishes
- Invest your trust's assets to benefit future generations
- Handle the preparation and filing of trust income tax returns
- Put the interests of the trust and your beneficiaries first
- Allow you to originate your trust in Nevada, which offers creditor and divorce protections
Of course, there's no one-size-fits-all solution for every trust creator. Whether you originate your trust in Nevada or elsewhere, the consulting team at Schwab Personal Trust Services can help you think through the options and capabilities that work best for your situation.
Learn more about Schwab Personal Trust Services.
Schwab can help you set up a trust account.
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This material is intended for general informational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.
Charles Schwab & Co., Inc. ("Schwab") is affiliated with Charles Schwab Trust Company ("CSTC"), the corporate trustee for Schwab Personal Trust Services ("SPTS").
Schwab provides custody, securities brokerage, and related back-office services to the trusts for which CSTC serves as trustee.
Schwab may introduce clients to CSTC but does not evaluate whether SPTS is appropriate for each client or recommend SPTS for any particular client. It is the client's responsibility to ensure that CSTC meets his or her trust needs and to conduct any due diligence that may be required before engaging CSTC.
Charles Schwab Trust Company and Charles Schwab & Co., Inc., do not provide legal or tax advice. Consult with your legal counsel and tax advisors about your particular circumstances.