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Carrie Schwab-Pomerantz: Thoughts on Transferring Your Wealth

Estate Planning: Transferring Wealth

As I travel around the country meeting clients, I am often asked for my thoughts about estate planning. Everywhere I go, parents and grandparents want to know how best to distribute their assets in a way that not only reflects their personal preferences and values, but also addresses the needs of their heirs.

In fact, the concerns are so universal that for this column I’m departing from the usual Q&A format in favor of combining the most common questions into one discussion.

The interesting part of intergenerational wealth transfer is that there are no set answers. What is right for one family could be completely off base for another. Historically, estate taxes played a major role in determining how and when to distribute wealth. Today, however, with the estate tax exclusion set at $5.45 million (or $10.9 million for a couple) and portability between spouses, the personal side of estate planning generally overshadows tax avoidance. Thankfully for most, the horse can now lead the cart.

Regardless of your tax status, I believe that the key to impactful wealth transfer is to view your estate as your legacy. As you contemplate your choices, I encourage you to think of your estate plan as your opportunity to help and protect the people you care about most, at the same time that you are passing on your priorities and values. I hope that the following guidelines will help you do just that.

Carefully explore your options

Modern families generally involve complex relationships, and the more unique your family dynamic, the more thoughtful you will likely need to be. So take your time. Work with an experienced estate attorney with whom you have rapport. It’s great to solicit the advice of friends, colleagues or loved ones, but when all is said and done, you should be true to yourself.

Understand the risks of dividing your estate unequally

If you divide your estate unequally between your children or grandchildren, you run the risk of communicating that you care about one more than the other, or that you support one’s life choices over another’s.

Therefore, while it may seem logical to provide extra assistance to a child with fewer resources or special needs, you need to balance that with the emotional message you send. And circumstances change; by the time your estate is fully distributed, your heirs’ financial situations may be very different than they are today.

If, after careful thought, you decide that unequal distribution is the best path, make a special effort to explain your reasoning to your heirs now. If you are honest about your reasons, hopefully they will understand.

Examine your reasons for maintaining control

We’ve all heard the phrase “controlling from the grave.” While it’s natural to want to control your money, control generally doesn’t work so well for people. If you fear that an heir will be irresponsible with his or her inheritance, by all means explore setting up a trust. I caution you, though, not to set conditions with the intention of controlling an heir’s personal life decisions. When all is said and done, this approach could backfire.

Consider gifting a portion now and more later

No doubt about it, gifting during your lifetime can be a powerful win-win. Not only do the recipients benefit from your generosity, but studies have shown that givers benefit in terms of psychological satisfaction. Money can’t buy happiness; but as it turns out, giving can.

I would be negligent, however, if I didn’t include one caveat: Never let your generosity threaten your financial security. There will be no joy for anyone if you later have to rely on the loved ones you tried to help.

Explain your decisions

Once you’ve created your plan, talk to your family. As much as you may believe that your decisions are clear and correct, don’t risk the potential for misunderstanding. Invite their questions and respond honestly. The dialogue that ensues may be as valuable as the financial resources you pass on.

Carrie Schwab-Pomerantz, CFP®, is President of Charles Schwab Foundation and Senior Vice President of Schwab Community Services at Charles Schwab & Co., Inc.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Where specific advice is necessary or appropriate, Schwab recommends consulting with a qualified tax advisor, CPA, financial planner or investment manager.

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.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. 

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