So much of our adult lives is spent working to acquire money. We want to increase our income, improve our investment returns, add to our retirement accounts.
Once we’ve sent our children through college, reached our retirement funding goals, and accomplished what’s important to us, those of us who want to can shift to a new way of thinking. We can start deciding how we’re going to give our money away.
The question then becomes: How do we do that effectively? Or, if we’re leaving money to family or loved ones, how do we do that fairly?
Here are some tips.
Consider a “giving while living” approach instead of placing everything in your estate.
While there’s nothing wrong with giving money to family members or charities as part of your estate, after you pass away, you may want to consider starting while you’re still alive.
For one thing, giving money to the organizations and people you love while you’re still around to see it can be highly satisfying. It allows you to witness your money helping people in need, or perhaps to ensure a grandchild will be able to attend the college of their choice.
Many philanthropic-minded individuals donate existing life insurance policies they no longer need to charitable organizations. By doing so, they make a large donation – often more than what they could otherwise – without tapping into other assets. However, with this option the charity is tasked with maintaining the policy and the donor must still make policy premium payments.
One way to uncover liquidity to donate before you pass is through a life settlement. If the policy qualifies and with the help of a licensed broker, the policy owner can sell the unneeded policy to an institutional buyer in the secondary market. They can then use those funds any way they wish, including donating all or a portion to their favorite charity.
This way, the donor sees the benefit of the gift while they are still living.
If you have a second home to leave to your heirs, set up an LLC.
Second homes, vacation homes, cottages - division of these real property assets can cause turmoil within a family once the owner is deceased.
To avoid that potential outcome, many estate planners advise setting up an LLC that owns the home and giving shares in the company to each child. Then, detailed plans for how costs are covered and who is responsible for what can be placed in the LLC’s managing documents.
Alternatively, families can develop those detailed plans without setting up an LLC - but they must put them in writing. Some families set up a “house account” that each child pays into annually to help cover costs of maintenance, cleaning, etc. The most important thing is that everyone knows what their rights and responsibilities are before they have to find out about it in your will.
Do your best to talk with your family early about how you’ll divide your estate.
Even close families can find themselves dealing with anger, resentment, and hurt over the division of an estate. When those family members are also dealing with the grief of losing a parent, those feelings can quickly escalate into feuds.
Avoid this possibility by talking with your family as early as possible about who will get what, how you want your estate managed, and why you’ve made those decisions. This will give your family members a chance to ask any questions they have, air their concerns, and avoid any unpleasant surprises when your estate is passed to them.