How Families Get Financially Stronger
Over the years, I have had many conversations with people about what they want to give to their kids and grandkids. Some people are not compelled to help their kids once they reach adulthood while others are. Of those who are, many choose to give to their children and grandchildren throughout their lifetimes so that the gifts can be either directed by the parents/grandparents and/or made use of while their family members are young and building their lives. Gifting strategies can be tied to your personal values so that the money is used wisely and leveraged to empower their lives rather than entitle their attitudes. A common strategy is to fund education accounts. You may also consider putting money into retirement accounts once the child has earned income. Roth IRAs can be powerful tax-favored compounding tools, especially when given ample amounts of time for the investments to appreciate (start young!). A person early in their working years usually is dedicating their earnings to pay bills and get started in life. If you see your children or grandchildren working hard, you may consider adding money to a Roth IRA for them. Be aware that each year the IRS sets limitations on eligibility to contribute based on income, as well as limits on how much we may contribute. If one’s earned income is less than the maximum contribution limit set by the IRS, then the amount of earned income becomes their maximum contribution amount. In other words, you cannot contribute more to a retirement account than you earn in a given year. As the young earner progresses, contributions could be in the form of a match to incentivize the discipline of saving for retirement.
Life insurance can also be a powerful tool leveraging premium dollars into a much greater death benefit. The caveat is, we never know if the death benefit will pay out tomorrow or years from now. Commonly, a married couple may have life insurance policies insuring each spouse with the primary beneficiary being each other and contingent beneficiaries as children. When the kids are young and dependent on parents, the entire death benefit can be needed by the surviving spouse to replace the income of the person who passed away. If and when there becomes “wiggle room” financially, you may consider including your children as partial primary beneficiaries. For parents who definitely want to help their kids, concerns may be that if one parent passes away many years before the second parent passes on, a few things could come into play: 1) it could otherwise be decades before the kids receive any inherited money from the parent who passed, 2) new blended family members could come into the picture if the surviving parent marries again. If, upon the second marriage, there was not sufficient beneficiary designations, as well as a will or a trust drafted to include children from the original marriage, all assets upon death could be left to the second spouse and the children of the original couple could be left out, 3) as a general rule, life insurance death benefit proceeds pass on income tax free, therefore complex gifting strategies to help minimize or avoid taxes on other monies are not needed. Estate planning instructions may include that if the children are under a certain age, the inherited money would be placed in a trust account for their benefit until a more mature age (and therefore decision-making skills) is reached.
In a recent conversation discussing strategic plans to contribute to the lives of their children, a couple I met with said it best: this is how families get (financially) stronger.
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com. SchulferAndAssociates.com , louannschulfer.com or louann.biz
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
