Vital Estate Tax Update:
Don’t Let A Judge Decide Who Gets To Take Away Your Heirs’ Inheritance.
Plan Now To Give Them Divorce, Creditor, Lawsuit and Even Inheritance and Estate Tax Benefits and Protections
Most people I meet want the same things: to live a full life, to be happy and to bring happiness to others, and then to leave a meaningful legacy that benefits the people they love. In a perfect world, they’d do that without unnecessary taxes, stress, or risk. But the way you leave your assets to your spouse, children, and other heirs matters more now than many clients realize.
Why? Divorce rates are high, litigation (of all types) is increasing, more businesses fail than ever before and our children’s economic success is fragile. All of these pose risks to the inheritance you leave to those who you love.
But most people don’t even know that they can provide divorce, creditor, law suit and often tax protection to their heirs. You can.
However, there’s a critical distinction between leaving assets outright and leaving them in a properly designed trust (but not just any old trust). And if you’ve worked hard to build wealth, and you’d love to protect that wealth for your heirs, this one choice can mean the difference between their financial security… and financial disaster.
Let me explain.
What Happens When You Leave Assets “Outright” or In An Ordinary Trust?
When assets pass “outright” under your will, by beneficiary designation (think bank accounts, brokerage accounts, or even life insurance), or in a trust that terminates at a certain age, those assets immediately become owned by your heir. That might sound fine—until:
- Your heir gets divorced (or has a messy break up in a relationship where they put assets in joint names)
- A lawsuit from work, a business or car accident hits them
- They’re involved in a bad business deal that causes a business or personal bankruptcy
- Or they pass away and their spouse remarries, unintentionally disinheriting your grandchildren
So, while inherited assets can (with advanced planning) be shielded from such risks, well-meaning clients and advisors often make outright transfers of all assets without providing higher levels protection for those assets.
How a Special Type of Trust Can Protect Your Heirs (From Themselves If They’re Young And Reckless But Also From Divorces, Lawsuits And Other Risks- Throughout Their Lives and Even When They Pass Those Assets To The Next Generation)
Well, you might ask, if leaving assets outright is risky then what are the alternatives?
Consider using a long-term technique of the mega rich now commonly called a “Beneficiary-Controlled Trust.” This name is slightly inaccurate, but is a special type of trust that can gives your responsible heirs high levels of “control”, access to income, principal and use of the money or assets (including shore homes, vacation homes etc.) but without technically “owning” the assets.
And if they don’t own them, those trust assets are hard to take away in a divorce or lawsuit and may not be taxable to their heirs even when they pass the assets to the next generation.
Done properly, this structure provides:
- Divorce protection
- Lawsuit and creditor protection
- Potential Estate and Inheritance Tax minimization
- Multi-generational legacy planning
- Flexibility and control for your heirs
- And a significant layer of privacy and clarity
This isn’t just some crazy legal theory. Let me tell you two quick stories that explain why these trusts are so powerful…
One of our clients (the facts and real identities are altered to protect the client’s privacy), a successful business owner, left several million dollars in trust for his son.
A few years after the client’s passing, that son was sued in a complicated civil litigation matter related to his business. The plaintiff’s attorneys suing him knew about the trust—but they couldn’t access the funds.
In another case, a client’s daughter got married and then divorced. But again, the lawyers for the divorcing husband couldn’t claim the assets.
Why?
Because the assets weren’t owned outright or directly by the son and daughter (who were being sued or who were getting divorced). Rather, they were owned by the type of trust we’re discussing in this article. And the trust had asset, divorce, creditor and estate tax protections built in… from the start.
But this type of planning takes more of your time, lawyer experience and therefore, costs more.
Why This Planning Costs More, And Why Some Clients Happily Pay That Extra Cost
Building a trust like this is more complex than simply updating a will or naming beneficiaries on an account. It requires thoughtful legal drafting, coordination with your financial advisor, and sometimes the support of your CPA or insurance specialist.
Yes—it costs more. But if you like the idea of protecting the assets you leave to your heirs, it’s worth the additional expenditure of your time, effort and costs. And, in some cases, the savings in estate and inheritance taxes can be a large multiple of that fees and costs.
Clients who choose this strategy understand they’re not just paying for documents. They’re paying for:
- Protection that outlives them
- A custom-built legacy plan
- A structure that can save their heirs significant and sometimes millions in future taxes, losses, or litigation
- And coordination with a team of professionals who know how to make it all work together
Is this for you?
Well, if your net worth exceeds $5 million, (or if you’re leaving more than $1 million to one or more heirs) these risks - and opportunities - are real and potentially significant.
And the families who benefit most from this planning often say they sleep better knowing their heirs are protected without feeling controlled.
Why Timing Matters: 2025 Gift Exemption Changes Ahead
Right now, the federal gift and estate tax exemption is historically high – and under the new law it will be $15 million per person.
That’s why now may be the time to explore lifetime planning options, especially if your estate exceeds $5 million (or $10 million combined if married). Many of our clients are using irrevocable “beneficiary-controlled” trusts to lock in today’s higher exemption and transfer wealth more efficiently while maintaining access or control where appropriate.
For More Information, click here to read our article on the OBBBA.
For Lifetime Trusts/Gifts, Team-Based Planning Means Better Results
We’ve found that the best outcomes happen when your legal, tax, financial, and insurance professionals work together. When everyone is on the same page, you can:
- Fund trusts with appreciated assets
- Coordinate beneficiary designations
- Review life insurance strategies
- Align investment goals with trust terms
- And prevent the kind of missteps that undo good planning
We routinely work shoulder-to-shoulder with our clients’ advisors to create plans that actually work—not just on paper, but in real life.
Have a smaller estate but still want these protections for your heirs?
Even smaller estates, where you do not want or need to make lifetime transfers, can use this approach under the will or a revocable trust where nothing happens until your death if you are not married, or of the death of the surviving spouse (in the case of married couples).
Finally…
Want to Learn More? Let’s Talk
If you’re ready to take the next step, or if you’re just curious whether this kind of planning is right for your family, our team of smart humans is happy to have a conversation. There’s no risk. If you decide to move forward, your consultation fee (if any) is applied to the cost of any planning.
You can reach our office at (610) 933-8069 to schedule a 2025 Beneficiary Protection Strategy Session.
The way you leave your legacy matters. Let’s make sure it lasts.
