trust
Donât Want to Leave Money to Your Kids? Youâll Probably Change Your Mind.
Some parents fear leaving their children too much money. They talk about their friendâs child, who ended up doing little with their lives and abusing drugs and alcohol. Or they have an image of âtrust fund babiesâ who sleep all day and party all night.
The good news is that the vast majority of children with inherited wealth do lead productive lives and would not fall into any of the above descriptions. Their parents set expectations, provided guidance and encouragement, and set limits when the children were growing up. No surprise their children turned out just fine.
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Parents also fear leaving their children a significant part of their wealth because it could ruin their drive to live a productive life, fearing they simply might not feel the need to work. Or that the children will feel that any financial success they achieve will not be meaningful compared to their inheritance. So, they choose to leave a relatively small inheritance, enough to help but not eliminate the need to work. But parents often greatly underestimate the amount their children may need simply as a safety net, let alone to enhance their lives. Further, parents may not be aware there are certain controls they can put on the money they leave to their children that can assuage fears about misuse.
As parents grow older, learn about these controls, and start to realize economic conditions are different, many end up changing their minds about how much money they want to leave their grown children. Coming to this conclusion earlier rather than later can have its benefits.
Hereâs how to re-think leaving money to your children.
Determine your goals
If a parent’s concern is that they will harm their child by leaving them too much money, they need to determine what dollar amount will cause that harm. The answer depends on what they want their children to achieve with the money. Then consider the what-ifs. For example, assume a parent wants to leave their child $500,000.
- What if the adult child has a health crisis or they have a baby with a disability, incurring significant costs to the adult child and/or preventing them from being able to work?
- What if the market sinks and the $500,000 becomes $250,000?
- What if despite working hard, they or their employer are put out of business by a competitor, regulations or shifts in consumer taste?
While $500,000 may seem like a lot, if you take into consideration all the possibilities, it can be dissipated quickly on non-frivolous expenses. On the other end of the spectrum, some parents ask where the limit is. When is the line crossed from âenoughâ to âtoo muchâ? They want to help their kids, but they donât want to give them beyond what they could possibly need.
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These goals may change as the child ages and grandchildren are born. Once their adult child starts working, parents may want to help with rent so they can have a nicer place to live or groceries so they eat a healthier diet. When grandchildren enter the picture, the parents may want to help their adult children buy a big enough house in a safe neighborhood with good schools. Grandparents may want to help pay for the grandkidsâ higher education (or even private school for K-12) or want to ensure they will be able to afford good health care.
Parentsâ goals and perspectives change over time, and financial plans change along with them.
Learn about controls and family conflict
Parents can put controls on the wealth they leave their adult children by using trusts. Parents can choose a trustee to manage the trust so the kids donât have full access or control. The trust can help them get an education, buy a place to live and start a business, but they canât just live off the trust and sit around doing nothing. These controls can be different for each child. If parents know one child wonât lose their drive no matter how much money they have but another child will spend it all in a week, the children can be given different, access, controls and rights over their trusts.
These differences could cause conflict in the family, so parents need to keep an open line of communication with their children to explain their concerns and why they set the trusts up the way they did.
Teach your children about money
Itâs up to parents to teach their children how fortunate they are to inherit anything, and that responsibility comes along with having money. Used properly, wealth can provide a safety net for unforeseen circumstances (which always arise) and provide a better lifestyle than a child might otherwise attain with his or her own income. Used wisely, having wealth can impact the childrenâs own communities if used to create jobs by starting or growing a business. Parents can teach their children that while they have a comfortable lifestyle, they can also use their money to benefit the world around them.
Parents may fear that leaving their children money will end up doing more harm than good, but if parents teach their children from a young age how to properly use their wealth and set expectations, itâs less likely the children will use it irresponsibly. And if parents are still fearful their kids wonât use their money properly, they can place controls on what they give. But parentsâ goals will inevitably change as they get older and situations change, so leave room for flexibility.
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Are you living in a one-income household? Millions more of us are now. If youâre in a single-income home, here are seven money moves to make today.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
How Do You Open a Business Checking Account?
Opening a business checking account isnât much different from opening a personal account, but itâs an important step when it comes to running your business. A business account can help you keep your personal finances separate from your professional transactions. This, in turn, can make growing your credibility and completing your taxes easier, among other […]
The post How Do You Open a Business Checking Account? appeared first on SoFi.
Capital One Adds ‘Account Manager’ Feature
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Got Cryptocurrency or NFTs? They Need to Be in Your Estate Plan
Cryptocurrencies and non-fungible tokens (NFTs) are becoming a bigger part of the investment world as more and more people buy these assets. It is important to take these digital assets into account in your estate plan so they will pass to your loved ones at death, just like more traditional assets. Crypto and NFTs, however, can present challenges to securing, transferring, protecting and gifting family wealth. New strategies are evolving to address this growing demand for family planning and tax planning with these types of assets.
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There are currently many different cryptocurrencies and NFTs. Right now, the top cryptocurrencies are Bitcoin, Ethereum, Binance Coin, Tether and Solana, and they make up a large part of the trillion-dollar market value. An NFT is a unique, collectible, tradable digital asset on the blockchain, sort of like digital art, a photo or a video game avatar, that can only be purchased on an NFT marketplace through a bidding process. For example, you can purchase virtual land and real estate in the form of NFTs. In November 2021, someone paid $450,000 to be Snoop Doggâs neighbor in the metaverse. Sales of NFTs jumped to more than $17 billion in 2021, demonstrating a growing desire for these collectibles.Â
Track Your Cryptocurrency and NFTs
Cryptocurrency is accessed through a private key, which is a series of alphanumeric characters known only to the owner and stored in a digital wallet or in cold storage. Whoever has the private key can buy, sell and use the digital currency. Your family or fiduciary must know that the cryptocurrency exists, where to find the assets, and what to do with them. One option is to share the seed phrase and private keys with your fiduciary. Another option for safe tracking is to place your crypto-assets and NFTs in custody, like a software application or hardware wallet. Companies offering digital-asset custodian services include Coinbase, BlockFi, Casa, Unchained Capital, Anchorage and Genesis. A third more old-fashioned option is to make a schedule of your digital assets for your fiduciary and list the login protocols for each account on whatever cryptocurrency exchange you use.Â
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Similarly, NFTs can only be accessed with a password or personal key.  Like crypto, your passcode or personal key must be shared with your fiduciary in order for it to be passed down. A digital legacy (an organized, updated list of your digital assets and the relevant related information and passwords a fiduciary will need to access them) can be a good place to keep this information.Â
Ultimately, you need to be sure that the details of the ownership of the NFT and cryptocurrency, including the private keys and passwords to access the digital wallets, are accessible to the fiduciary â otherwise, the cryptocurrency and NFTs could be lost forever.Â
Cryptocurrency, NFTs and your Estate Plan
It is currently difficult to open cryptocurrency accounts and NFTs in the name of a revocable or irrevocable trust. However, wallets do exist that allow you to open an account in the name of a trust, or you can try to name a trust as a beneficiary of your account. This option is only available if the company handling your account allows it. As of the time of this article, our clients have generally been unsuccessful in naming beneficiaries for crypto accounts. It is likely that the ability to name a beneficiary will evolve rapidly and could soon be available.
 If there is no trust account and no named beneficiary, then your crypto accounts will pass as part of your probate estate under your will. You should make sure that your will, trust and durable power of attorney include digital asset powers for the fiduciary handling your estate. It is also important to know if your state has adopted either the Uniform Fiduciary Access to Digital Assets Act (UFADAA) or the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). Of the 50 states, 46 have adopted one of these two laws. UFADAA and RUFADAA make it easier for your loved ones to manage your digital assets both during incapacity and after death.
Conclusion
The estate planning and tax issues surrounding NFTs and cryptocurrency are complex and continue to evolve. In upcoming articles, we will address the tax issues concerning these assets, as well as some planning techniques. Â
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Dear Penny, I am 73 and have one son who is unmarried and lives in the same town. I also have five siblings. I am very close to my youngest sister who is on disability. I paid my home off two years ago, and I have some 401(k) savings. I am planning on leaving my [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Medical Professionals: Itâs Not Too Late to Save on Your Taxes
After experiencing financial hardships in 2020 caused by COVID-19, 2021 was a banner year for many medical professionals. Iâve spoken with several dentists who saw their income grow 20% or more last year, rebounding nicely after enduring temporary office closings and patients canceling or delaying their appointments due to the pandemic.
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For these professionals, this situation presents a unique opportunity: how to best invest this windfall and still minimize their 2021 tax bill. And because doctors and dentists â as business owners â can wait until Sept. 15 if they extend their tax returns to file their 2021 business tax returns, there is plenty of time to make the best use of any extra income while still cutting taxes.
Here are four recommendations on steps to take now:
Establish a Cash Balance Pension Plan for 2021
Many medical professionals donât know they have until they file their business return, including extensions, to open and fund a cash balance plan for the 2021 tax year. For example, in 2022âs first quarter, I opened a cash balance pension plan for a client who was able to save an additional $200,000. This decision will save them a substantial amount of money on their 2021 tax return.
Like a traditional pension, a cash balance plan provides business owners with the option of a lifetime annuity. However, unlike pensions, cash balance plans create an individual account for an owner. These plans are an attractive option, allowing medical professionals to potentially save a substantial amount for retirement annually in a tax-deferred retirement savings account.
Once the owner reaches retirement, they have the option of taking these savings in an annuity spread out over several years or as a lump sum. For those who saw business rebound in 2021, itâs a great tool to catch up on retirement savings while paying less in taxes.Â
Upgrade Your Retirement Plan for 2022
Many medical professionals use the same retirement plan strategy year after year without much thought, but now is a great time to consider changing the planâs design to allow more savings. For example, if you only have traditional individual retirement accounts (IRAs), consider putting a 401(k) plan in place.
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With an IRA, doctors and dentists (and anyone else) can save $7,000 into a traditional IRA if 50 or older. While there are other differences and considerations, a 401(k) retirement plan offers higher contribution limits for participants of up to $67,500, including profit sharing and potential catch-up contributions for 2022. While this wonât save you on your 2021 tax bill, you can utilize the excess cashflow earned during 2021. There are many different retirement plan designs, so speak with your advisory team about all the options. Â
Make the Most of Your Equipment Expenses
Through the end of 2022, federal tax law allows medical professionals to depreciate 100% of their spending on new equipment, which reduces taxable income. Starting in 2023, the bonus depreciation drops to 80% with an additional 20% drop annually until you canât take any bonus depreciation in 2028.
If you plan to buy new equipment in the next few years, consider accelerating plans by purchasing it this year to take advantage of the 100% bonus deprecation. Of course, donât make any unnecessary investments â if it isnât something you planned to purchase already, donât do it.
Fund Future Charitable Contributions by Setting Up a Donor Advised Fund
Many medical professionals contribute thousands of dollars annually to their favorite nonprofit organizations. For those who plan to continue making donations for several years â and desire to get a bigger tax break in one tax year â I recommend setting up a donor-advised fund (DAF).
A DAF allows anyone to contribute and receive a charitable deduction in one year, but to spread out the distribution to one or more charities over future years. By doing so, a person will receive a tax deduction at the time of the gift while also making a generous donation.
For example, a medical professional who usually gives $20,000 annually could fund three years of charitable giving by setting up a DAF and contributing $60,000 into the DAF and take the tax deduction in the current year. While the deduction helps offset the high income â thereby lowering taxes â the money can be dispersed over time.
This strategy works particularly well in the year a medical professional sells their practice or has another large one-time tax event. After they retire, their taxable income and itemized deductions are significantly lower so they often use the generous federal income tax standard deduction instead.
2021 was an unusual year for many medical professionals who own their own practices. Taking one of these four steps can save thousands of dollars in taxes while contributing a substantial amount to retirement accounts for future financial independence.
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The post Adopting A Rescue Pup? Here’s How 15 Dog Experts Recommend Introducing A New Dog To Your Home appeared first on The Rent.com Blog : A Renterâs Guide for Tips & Advice.
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This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.