When you get to a certain point in life it isn’t about the dollar amount, it’s about whether or not you feel you have “enough” for what you want to do the rest of your life. If you have come to a point where you know what this is and still have money left over, you might want to start giving it away. But how do you do it and in a way that works for your estate, your taxes, and of course your family?
You don’t have to be a millionaire to feel like you’ve got enough. How many cars, vacations or houses does anyone really need? If you’ve reached that point, congratulations. Now, what do you do about it? How do you share your resources in a way that is carefully thought out and doesn’t create a battle among family members? An article from AARP, “How to Give Your Money Away,” provides some good points.
Your grandchild needs a college education. If you are fortunate enough to have a grandchild (or more) you might decide you want to help them out and relieve some of the burden from your own children. If you have made this decision, there is a very useful tool called the 529 program. You can use a 529 college tuition plan to help your grandchild by contributing to a plan created by the child’s parent. Financial aid formulas look at contributions from a grandparent’s plan but not a parent’s plan as student income. To allow your grandchild to be eligible for student aid or grants, make sure that the funds you contribute go to his or her parent’s 529. Many states permit you to switch ownership to the parent if the beneficiary remains the same.
You want to be philanthropic, even if you’re not Warren Buffet. You can use what’s called a DAF—Donor Advised Fund. They are similar to charitable savings accounts. The tax deduction for any cash or investments placed in the fund is immediate, so you can front-load two or three years’ worth of giving into one year. You can also claim a charitable deduction for a year when you intend to itemize instead of taking the new standard deduction. You can direct grants from the fund to any non-profit organization you choose and whatever timeframe you like.
One child is a smashing success while the other is a “starving artist.” Sometimes the disparity of incomes between children can be a result of choice and/or abilities. When this is the case, you may decide you want to help one out a bit more than the other based on their situation. For example, one of your children might have a disability and needs special planning. You might make some different choices to take care of them in a more involved way. You can certainly make choices of how your assets will be allocated to your children and you don’t have to share all the details with them so as to avoid hard feelings. Logic prevails in some families and there’s no drama over these kinds of decisions. Less information about their inheritance is better for others. You could also insert a no-contest clause into your will to forestall any litigation.
You have visions of generations enjoying your summer cottage. Sometime this works out and the family is happy to continue the legacy of such an establishment. There may have been many strong memories made there by all the members of your family and they want to keep it in the family to keep the tradition (and memories) going. However, sometimes the kids have no interest in the property and just want to sell it. It is important to have these conversations early so there are no surprises. If no one wants the property, sell it when the timing works for you. If one kid loves the house and the others don’t care, work out the numbers so the house stays in the family, but the child receives a smaller percentage of the other assets. If the family wants to keep the house, work with an estate planning attorney to create an LLC (Limited Liability Company) and give shares to the kids. You’ll need an operating agreement, including how the cost of maintaining the property will be handled and what happens if someone wants to sell their share. Define the universe of eligible owners as lineal descendants and not spouses to forestall an ownership battle in the case of a divorce.
With all of these areas, it can happen easily and with minimal animosity…but only if you do the proper planning ahead of time and have the tough conversations while you are alive. You should definitely involve your estate planning attorney in these discussions to help guide you to a positive (and agreeable) conclusion.