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Legacy Giving

christmas-gifts.jpgAt this time of year, the idea of giving gifts to children tends to bring up images of colorfully wrapped toys, electronic games, and attempts to decipher instructions for “some assembly required.”

For some parents, however, the idea of giving to children is related instead to tax laws, trusts, and dividing assets. As part of their long-term legacy planning, older couples with a high net worth sometimes want to consider ways to pass some of their assets to children during their lifetimes instead of as part of their estate.

Before you automatically assume you aren’t in the “high net worth” category, by the way, you might want to take a closer look. If you own a business, for example, your net worth may be higher than you realize.

Before you start writing checks to the kids and grandkids, here are some ideas to consider. First, work through the emotional side of the decisions in order to come up with a plan that fits your family’s needs. Factors to look at include:

• First, be positively sure that you will not need the assets in retirement. The recent market crash is a good reminder that people may need more for retirement than they originally thought. In the past two years, I’ve had several clients make substantial gifts to children that would be nice to still have in their portfolios today.

• Next, have a conversation with the kids about what you want to accomplish. Surprisingly, not every child is no-strings-attached.jpggoing to want a gift. Make sure you aren’t giving with strings attached in the form of unexpressed expectations about how gifts should be used. Such expectations may result in lasting resentment.

• Be sure you aren’t doing more damage than good with the gift. Large sums of money have “ruined” more than one life.

• If you can, it is helpful to work with a financial planner and financial therapist to resolve these larger issues.

Once you have clarified your intentions, it’s time to consider various ways you might accomplish your giving goals with maximum benefits and minimal tax consequences. I’d strongly advise consulting with professionals such as accountants and attorneys before you take any action.

• Maximize the $12,000 annual gift limit. Married couples can transfer $24,000 per child, annually.

• Explore setting up a family LLC and begin gifting shares. There must be a valid business reason for such a company. This must be done very carefully and with the blessings of your attorney and tax advisor.

• Consider maxing out your lifetime gifting limit of $1,000,000. At the current market levels, this may be the opportunity of a lifetime to gift undervalued assets.

• Giving assets that have appreciated can lower your capital gains taxes.

• Make your gifts as soon as possible. With the current economic climate and political changes, giving limitations could be reduced and taxes increased.

• Consider making gifts of income-producing property to a Charitable Lead Trust, where the charity retains the income for your lifetime and the property reverts to the beneficiaries upon your death.

• Consider making gifts of appreciated assets to charity with a Charitable Remainder Trust, where you keep an income for life and the principal reverts to the charity on death.

legacy-giving.jpgOne of the advantages of considering giving away assets during your lifetime, of course, is being around to enjoy seeing the results of the gift. Even more important, it can open the way for important conversations with your loved ones about money and beliefs. It can help you communicate the values that are an important part of your legacy.

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One Response to Legacy Giving

  1. Susan Hotalling December 24, 2008 at 9:15 am #

    Great column – been suggesting and teaching this for years to younger folks, especially agri. students. Sadly, you rarely can get any of the older folks to actually listen and follow through, including my own parent. I admit that I haven’t been any more successful in finding the golden key to get past “I already know it all, and you kid, know nothing” attitude of the so called greatest generation and older boomers. There are many fine folks in the agri. extension and agri. business education sector struggling to find better ways to connect and assist those needing estate planning expertise. Your book/columns on the psychology of money are spot on.