In planning how to get your wealth distributed, you have the option to leave everything to be sorted out after you are gone or make financial gifts while you are alive. Some clients want to pass along their wealth to the children and let them in turn, to pass along to their children. Others feel they have helped and provided for their kids and want to set up accounts directly for the grandkids. Transferring gifts while you are still alive lets you enjoy seeing the benefits of your gifts. Also, there is a $17,000 a year gift you can make to each grandchild without it counting against the lifetime limit of the estate tax credit. There are different gifting methods and strategies you can use to achieve these goals.
Here are just a few of them:
- 529 Plans – These plans are investment accounts to save college expenses sponsored by state governments, state agencies and educational institutions.
- UGMA (Uniform Gifts to Minors Act) – These are custodial investment accounts where the child or grandchild is the owner but you control and manage the investments until he or she becomes an adult between the ages of 18 and 21 depending on the state.
- IRA Accounts – If your child or grandchild have jobs and earning income, you can set up or contribute to an IRA. Consider a Roth IRA. The added benefit is that once they retire, their withdrawals will be tax free.
- Trust Funds – It is a legal document that needs to be drawn up by an attorney. It holds the accounts in trust which you can control and set up requirements for recurring the assets such as a specific age or event.
Before giving money away, always plan for your own retirement and living in the manner of your choice. Although you want to share wealth with loved ones, you need to secure your own needs first.
