A common theme we see while working on financial planning with families is the desire to leave a legacy. How that legacy is defined changes from one person to the next, but a common misconception is the assumption the wealth transfer can’t start until after death. A reason many don’t think to start the wealth transfer process while living is the uncertainty that their retirement funds will be enough to fund their retirement. That is certainly a legitimate concern but is one that can be alleviated with proper planning and execution. The first step is identifying tier one assets – those assets which you need to live your life in retirement. Once that number is quantified you can create tier two assets – those assets that can be used for gifting, experiences and charitable giving.
Gift now while your family needs the most help.
The average couple retires when their kids are in their 30’s. While they are just beginning to enter prime earning years, there are typically myriad financial pressures as they start a family, pay off student loans and/or buy a home all while trying to save for their kids’ education and own retirement. In 2019, a couple can gift a total of $30,000 per year per individual without incurring a gift tax. That means if you have a child who is married with two children, you and your spouse could gift $120,000 per year without having to pay the gift tax. This money can be used for things like funding a 529 Plan for your grandchildren’s education, down payments on your children’s homes or to help them payoff any lingering debt. If you plan to leave an estate to your children, you can spread that out while they are going through life events where the extra cash could really help out.
Live ahead – be active while you’re young and spend money on experiences.
It’s important to be active early in retirement while still physically able to enjoy experiences with family. Sponsoring trips for the family create experiences that your children and grandchildren can carry forever. These priceless memories often mean a lot more than the extra ten thousand dollars they might inherit otherwise.
Don’t wait to donate to charity
There are many great charitable organizations that make a difference in our communities. If you have a favorite organization you want to support, making annual donations can be advantageous both on a personal and financial level. Gifting year after year allows you to maintain some level of control for how your funds are put to use as well as the personal satisfaction that comes from making a difference. Annual charitable giving can also be an excellent tax planning strategy. For example, people 70 ½ or older can donate their required minimum distribution to avoid the associated taxes or anyone can gift stock with long-term capital gains to donate without paying taxes on the gains.
Planning isn’t just about retirement – it’s about living well. These are a handful of suggestions that can empower you to maximize your money and provide the greatest benefit to you and your family. That is how a meaningful legacy is made.