wealth transfer

How Will a Recession Impact Wholesaling

Show Summary What’s up freedom fighters?! Hey, welcome back to the show! Today we’ll answer a question from my buddy Jonathan, who actually is in my local market. By the way, you…

Charitable Trust vs. Foundation: Key Differences

Charitable trusts and foundations can be used to both secure personal, family or business assets and enable philanthropic endeavors. Each one provides assets, such as securities, with protection from lawsuits and other claims. Trusts and foundations also can offer significant … Continue reading →

The post Charitable Trust vs. Foundation: Key Differences appeared first on SmartAsset Blog.

5 Estate Planning Moves to Make ASAP

One of President Biden’s campaign promises was to introduce tax reforms that roll back various Trump era policies while increasing tax rates for some of the wealthiest Americans. He will expand federal income tax for those earning $400,000 or more, plus increase capital gains and payroll taxes, in addition to expanding estate tax. If you […]

The post 5 Estate Planning Moves to Make ASAP appeared first on Good Financial Cents®.

With High Inflation and an Uncertain Stock Market, Do I Have Enough to Retire?

It’s an unusual time for people approaching retirement. While everyone wants to know if they are financially ready to retire, rising inflation and a slumping stock market may be fueling doubts. Some – especially those without a solid financial plan – may wonder if they need to keep working longer until there is more financial and geopolitical stability.

  • SEE MORE 8 Money Tips for Seniors Suffering from Inflation

I’ve worked with many individuals and couples who needed help to feel financially secure in retirement. Many have taken an initial stab at planning, taking online financial “quizzes” and running numbers through calculators to find answers.

For anyone is this position, here is a list of recommendations to begin the retirement planning process.

Understand Your Financial Position

 Start by answering a few questions; the answers will help serve as the foundation of any plan.  The questions include:

  • What assets do you own that can be used to fund retirement?
  • How much do you plan to spend each month in today’s dollars?
  • What kind of lifestyle do you want in retirement?
  • How long will your finances sustain you?
  • Do you want to leave money for your children and grandchildren?

With this information, a financial adviser can develop a comprehensive financial plan. To ensure that a person doesn’t run out of money in retirement, the plan is built for each person’s life expectancy. Life expectancy is often higher than what people might think – according to the Social Security Administration, there’s a 30% chance that men will live to age 92 and women to age 94. Families need to ensure that their portfolios can sustain living 20-30 years after retirement.

Should You Budget or Track Spending?

Many people don’t have a formal budget. That’s OK – budgeting can be helpful for some and emotionally draining for others. But it’s important to understand what makes up current spending in order to understand what spending looks like in retirement.

  • SEE MORE How to Find the Perfect Balance Between Spending and Saving

One way to build the financial plan is to assume spending is the same during working years and retirement. This assumption, though not exact, provides for some flexibility if anything changes – an important part of building a 30-year plan. 

Sometimes families spend more in retirement for a number of years while both spouses are in good health.  For example, a couple may feel they have a good handle on their retirement spending if they spend $120,000 annually with no mortgage payment or other debt.

However, what if that couple wants to travel more, spoil their grandchildren with gifts, and leave a decent financial legacy for their children? If that’s the case, they may need to make some changes so their portfolio can accomplish these new goals.

Gather a List of Specific Investments and Assets

Next, look at your current assets. Typically, we count only the assets that meet certain criteria:

  • Assets that are investable. These include cash, stocks, bonds and mutual funds.
  • Assets that can/will be sold for investment. A common example is a business.
  • Assets that produce income.  These can include rental properties or royalty payments.

A Financial Analysis Helps Determine Your Long-Term Plan

To build a plan for an individual or couple’s unique needs, financial advisers often use software programs that determine how wealth can be spread out over 20-30 years to cover all expenses.

As just one example, an analysis might consider what would happen if you retire today, and the market begins a three-year bear market. Will the portfolio sustain the desired spending or run out of money?

A financial analysis provides insight into how your retirement plan will really work.  And, in an effort to make certain your plan stays on track, we analyze it annually, even during retirement.

One way to get started on the goal to take charge of your finances would be to perform a self-audit with the above questions. This can help provide a baseline of information to begin developing a structured retirement plan together with your financial adviser.

As always, remember to consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. 

  • SEE MORE An Easy Way to Find How Much You Will Spend in Retirement

Don’t Want to Leave Money to Your Kids? You’ll Probably Change Your Mind.

Some parents fear leaving their children too much money. They talk about their friend’s child, who ended up doing little with their lives and abusing drugs and alcohol. Or they have an image of “trust fund babies” 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.

  • SEE MORE Time to Face Reality: Your Kids Don’t Want Your Stuff!

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.

Here’s 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 “enough” to “too much”? They want to help their kids, but they don’t want to give them beyond what they could possibly need.

  • SEE MORE If You Inherited an IRA Recently, You Could Be in for a Mess

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 grandkids’ higher education (or even private school for K-12) or want to ensure they will be able to afford good health care.

Parents’ 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 don’t have full access or control. The trust can help them get an education, buy a place to live and start a business, but they can’t just live off the trust and sit around doing nothing. These controls can be different for each child. If parents know one child won’t 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

It’s 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 children’s 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, it’s less likely the children will use it irresponsibly. And if parents are still fearful their kids won’t use their money properly, they can place controls on what they give. But parents’ goals will inevitably change as they get older and situations change, so leave room for flexibility.

  • SEE MORE Does Your Estate Plan Call for More Than Just a Will?

Discussing Family Legacy Plans? 5 Tips to Navigate ‘the Talk’

Passing wealth through generations can be fraught with complexity. Money is often an emotionally charged topic, and an older generation’s plans and intent for transferring wealth can trigger an array of reactions from younger family members.

Recent projections show that by 2045, $72.6 trillion will be passed on to heirs, and another $11.9 trillion will be donated to charities. The sheer magnitude of this generational wealth transfer amplifies the need for families to develop, and talk through, detailed legacy plans.

  • SEE MORE Someone Needs to Know Where Your Money Is

I often work with clients to coordinate a comprehensive multi-generational meeting where family members can come together in a safe, neutral space for the older generation to communicate their financial and non-financial plans to younger generations. For families – regardless of wealth level – looking to utilize a similar concept, below are five tips to make this meeting successful.

Preparation is key

For older generations interested in bringing their family together to discuss legacy plans and the future passing of wealth, the preparation before the meeting is paramount. Not only should the legacy plan be mapped out well in advance, but thoughtful consideration should go into the actual meeting. Who from the family should attend? Where will multiple generations meet? Is travel involved? Is it best to conduct the meeting around the holidays when families will be near one another?

Prepare for – and even practice – specific conversations that are critical to have, and determine the level of detail to share with family members. Doing this legwork upfront allows the older generation to be in the driver’s seat during the meeting.

Plan to have an objective third party present

Ideally this will be a trusted financial adviser, an attorney or an estate planner. A third-party, objective partner will be able to guide a productive conversation, helping the older generation to articulate their plan and prepare younger generations for their future roles and responsibilities to ensure everyone is on the same page. 

Anticipate problematic conversations

Ahead of the family meeting, visualize how certain family members may react to decisions. For example, if a sibling is likely to become upset over an unequal inheritance, anticipate and prepare for how the conversation should be navigated. Share specific insight into why that decision was made. Flagging sensitive conversations in advance, and preparing a response with your trusted adviser, can help determine the best strategy for the family discussion to come.

Understand the meeting doesn’t have to disclose dollars

While the older generation may feel tempted to outwardly define exactly how much money will be passed to heirs and charities, it can be more beneficial to keep the conversation high-level, so families don’t get caught up in discussions around who gets what.

  • SEE MORE Uncomfortable Lessons I Have Learned in Estate Planning

Talk about goals rather than dollars, and most importantly, know that an inheritance can be equal, but not equalized. Meaning, perhaps one sibling (who is single) receives an outright inheritance while another sibling (married with children) has a trust set up where they can withdraw funds to support, for example, their children’s future college needs. The ongoing trust can continue the generational legacy planning should this child have descendants.

Walk away from the meeting defining clear roles and responsibilities

The overarching goal of the meeting is for the older generation to lay out their financial and non-financial wishes and have family members clearly understand future roles and responsibilities. The older generation should consider younger family members’ interests, time commitments and other factors as they coordinate who is most appropriate to tackle different roles within the legacy planning process.

For example, is one adult child more equipped to serve as a trustee, managing their parents’ legacy plan and executing their future wishes? Will another adult child be better equipped to handle non-financial matters, such as vetting future living arrangements and taking this older generation to doctor appointments? This emotional support is an important role to define but can often go overlooked.

While this initial multi-generational meeting is foundational to the wealth transfer process, it is a conversation that likely will not start and end with one session. Older generations should continuously mentor younger generations to educate, inform and align them on future family values and goals. That said, the overall legacy plan is something that should be reviewed annually or when larger life events trigger the need to reassess the plan. 

  • SEE MORE Prince’s Estate Is a Royal Mess: 5 Ways You Can Do Better

Don’t Overlook these 3 Elements to Your Plans for an Amazing Retirement

For years you’ve focused on your career and saving for retirement. In doing so, you may have lost sight of the big picture of what your ideal retirement would look like – and how you might make it happen.

A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust

If you want to protect your family’s legacy from unnecessary taxes, divorce and creditors over the course of many generations, a dynasty trust could be your best friend.

4 Reasons Families Fail When Transferring Wealth

Several things can go wrong when a family tries to pass its wealth down to the next generation. To keep your own wealth transfer on track, keep these four common pitfalls in mind.

How Does a Credit Shelter Trust Work?

A credit shelter trust is used to help married couples with significant assets pass their estates after their deaths to children or other beneficiaries without incurring estate taxes. Credit shelter trusts are also useful for avoiding probate, shielding assets from … Continue reading →

The post How Does a Credit Shelter Trust Work? appeared first on SmartAsset Blog.