As a financial advisor, it is my experience that people’s most important financial goals come not from a place of materialism, but rather from a place of love for family and helping others. Here are some of the most common ways we see people express love through their financial plans.
One of the most common ways we see our clients express love through their financial plans is by giving gifts to their loved ones.
I have found that a lot of people would love to give money to loved ones to help them financially, but don’t because they feel they can’t afford to do so without costing themselves their own financial security.
This does not have to be the case. With proper planning, and perhaps a helpful nudge from a trusted advisor, you can feel confident about giving money to your loved ones now, so you can see the impact it has during your lifetime.
For 2019, you can give anyone (not just a family member) up to $15,000 per year, without having to file a federal gift tax return. If you are married, each spouse can give that amount, allowing you to gift a total of $30,000 as a couple. If you gift more than this amount to any one person for the year, it’s okay, you simply need file the gift tax form, which is used to track your lifetime giving.
Even if you do have to file the gift tax form, there is a low likelihood that you will pay tax on the gift. The unified tax credit allows for a transfer of $11.4 million per individual (or $22.8 million for married couples) tax-free, under the Tax Cuts and Jobs Act until 2025. So thankfully for the vast majority of Americans, you likely will not owe any gift tax upon your death. So don’t let an unfounded fear of taxes prevent you from gifting during your lifetime.
Paying for Education
One of the most noble and beneficial ways you can support a loved one is by providing for their education. With the cost of a four-year college education rising at an inflation rate of approximately 5%, it is becoming increasingly difficult to afford.
One solution is to gift money for education, presumably to pay for your grandchildren’s college education. This can be handled several different ways, but the most common method is by contributing to a 529 plan.
A 529 plan is a tax-advantaged plan, that is specifically designed to encourage saving for education. All 50 US states and the District of Columbia offer 529 plans, which provide for tax-free growth, and tax-free distribution of the money, provided it is used for qualified education expenses. In addition, some states also provide a tax deduction for the residents of their own states, who contribute to their state’s plan.
Gifting money to a 529 plan follows the same rules as the $15,000 gift threshold that was discussed previously, with one key difference, that a five-year lump sum contribution can be made at once. Thus, a single individual can contribute $75,000 in a year, while married couples can contribute $150,000 in one year (with no further gifts or contributions for five years).
Alternatively, if you did not contribute to a 529 plan, you could pay for someone’s tuition directly, without incurring a gift tax. The key here is that the payments flow directly from the gifter to the educational institution, without ever being received by the student (or anyone else). If the money is ever provided to anyone other than the educational institution, then the tax-free exclusion is lost, and could trigger filing the gift tax return.
Although paying the bills directly to the educational institution is a benefit to the student, the person who gifts the money will lose out on any possible state tax deduction (provided one is even available) by not contributing to a 529 plan. However, the advantage of paying the educational institution directly is that there is no limit to the amount that can be paid each year, and it does not count against a person’s unified tax credit.
Helping with Medical Bills
Sometimes life’s curve balls show up in the form of a medical emergency or a costly hospital visit that can derail a person’s finances. Thankfully there is an exclusion that allows for tax-free giving to pay for someone’s medical expenses.
This option requires the person making the gift to pay the medical bills directly to the medical institution. There is no limit to the amount that can be paid to the medical institution through this method, and it does not count against a person’s unified tax credit.
Spending More Time with Loved Ones During Retirement
Perhaps the most common way we see clients express love through their financial plans is by planning to use their money to spend more time with their families. This can take many forms, and I have seen it handled many different ways.
If your family lives far away, you could make more frequent trips to visit them than you did when you were working. Alternatively, you could help your family come visit you, by helping them pay for travel. For those who are fortunate enough to have their family nearby, it could mean taking your family on fun day trips or excursions that strengthen the family bonds, and form memories that will last.
Some people will even fund a full family vacation where everyone can be together. This could be something as simple as paying for multiple hotel rooms, taking the entire family on a cruise, or renting a large house for everyone to stay in. The destination and the lodging are really just the details, the true and lasting gift is being the sponsor of family memories.
Contributing to Causes that are Near and Dear to Your Heart
You may find tremendous satisfaction in donating your hard-earned money to causes that are important to you. Not only will you make a very real impact on the cause or charity, but the sense of joy that you may feel from helping others, may be difficult to beat!
Having Sufficient Assets or Insurance to Provide for Loved Ones
A very important way to show love is by ensuring that your spouse and/or family will be taken care of financially should you pass away prematurely. For some people, this means having sufficient assets saved up that can be used to pay for living expenses and any debt that may have accrued due to credit cards, car or home loans, or education.
For older adults who are in retirement, or nearing retirement, this is usually the time when you have more assets than you ever had in your life and are able to more or less “self-insure.” However, if you don’t have enough assets built up, or you are younger, then life insurance may be a necessary component for ensuring your financial health.
Most people would do well by considering term insurance, which provides a stated amount of insurance for as long as you pay the annual premium. In the event of your untimely death, the life insurance proceeds can be used to pay off debt and provide for the day-to-day living expenses.
It is never pleasant to talk about dying early, but I can think of nothing more selfless or loving, than ensuring that your family is financially secure in your absence.
Leaving a Legacy for Heirs
Perhaps one of the most common ways people show “financial love” is by leaving a legacy for their family when they pass away. This is often the most common because it may involve no planning; whatever assets are leftover at the time of death get divided amongst one’s heirs.
Other times, a specified amount of money can be set aside in advance as a legacy for heirs, and it may even be invested differently than the rest of the portfolio. For example, the legacy money may have a higher percentage invested in stocks to maximize its potential for growth, or it may be given a lower concentration in stocks to minimize its potential for loss. In either case, the point remains that it is a common desire for one generation to help the next generation(s) however they can, by spreading their wealth when they pass away.
Hiring a Financial Advisor for “When I’m Gone”
Finally, I have seen clients who have made the decision to hire a financial advisor purely so their spouse would be in good hands when one spouse passes away. Coordinating a retirement spending plan can be complex, and in the case of a surviving spouse who does not identify as a “financial person” this can be an insurmountable task. For that reason, finding a trusted financial advisor to partner with you and your spouse, can be one of the greatest acts of financial love, because you know they will be in competent hands when you pass away.