Generosity is a wonderful thing. If you’re at a stage in your life where you feel you have plenty of resources, and you’re motivated by a desire to give some of your money or possessions to those you love, that’s an admirable impulse – but beware. Your generous spirit can end up causing more trouble and creating more ill will than you thought possible. As this recent article from AARP asked, “How do you share your resources in a way that is simple, smart and financially prudent? And how do you keep the peace within your family if not everyone agrees on your choices?” AARP went to several experts on charitable giving to find the answers.
A Sibling Minefield
Here at AgingOptions we have witnessed time and time again how families can fall apart when siblings quarrel about mom or dad’s money. Whether it’s a gift of cash, or expenses for college, or the family vacation home, family generosity can turn into a minefield as old sibling rivalries flare up and miscommunication turns into full-blown conflict. We like the AARP article because it will stimulate your thinking and hopefully cause you to plan ahead so that many of the ugly pitfalls it describes will never materialize.
There’s one point that we feel deserves more emphasis than the AARP article provides, and that’s the importance of communication. Our general belief is that, particularly when it comes to money, it’s usually better to let your kids know your thinking up front than to try and explain your decisions after the fact (or even posthumously), especially when feelings are hurt and tempers flare. You may have excellent reasons why you’re planning to give your money to one of your kids a larger gift than the others, or why you intend to do more for one set of grandkids than for the rest. Dealing with these types of decisions ahead of time, while often challenging, can help your kids understand your decisions and reduce sibling tensions down the road.
Three Types of Family Giving
The AARP article, called “How to Give Your Money Away,” lists seven distinct areas that involve giving money to family and suggests ways to avoid problems. Let’s take a look at three of the most common.
- “Your grandchild needs a college education.” AARP says, use a 529 plan, the college saving program where money accumulates tax free and can be withdrawn tax free for qualifying educational expenses. But here’s a suggestion: instead of creating your own account, put your gift into an account held by your own son or daughter. “Financial aid formulas categorize distributions from a grandparent’s 529 plan — but not from a parent’s plan — as student income,” says AARP. “That could reduce any potential financial aid award.” Your best choice is either to deposit the money directly into a parent-owned plan or to give the money directly to the parent and stipulate that it be deposited in a 529 fund.
- “Your children have different levels of need.” Does every adult child deserve an equal inheritance? No. Sometimes, AARP says, there are good reasons why you might choose to leave different amounts to different kids. However, “whatever your reasons for dividing your estate unequally, it’s your decision.” It’s also your decision how you choose to handle the situation and whether to let your kids know in advance. If you do choose to divide your estate unequally, AARP warns, “you can’t prevent dissatisfaction among your children. You can, however, try to minimize the damage after you’re gone.” By communicating your reasons clearly, either face to face or by letter to be read when you’ve passed away, you at least can mitigate some potential resentment. (Another idea from the experts consulted by AARP in order to “reduce the chances of an ugly battle over the will’s terms and validity” is to insert a no-contest clause in the will – a stipulation that anyone challenging the will receives nothing.)
- “You want the next generation to enjoy the family vacation home.” We hear about this issue frequently. “First off,” says AARP, “don’t assume your kids want that memory-filled house by the lake. Ask. If none want it, that’s that. Sell when the time is right for you.” But if keeping the beach cabin or ski chalet in the family is your intent, AARP suggests you consult an attorney and set up an LLC – a limited liability company – with shares going to the kids. The LLC documents spell out use and maintenance expectations and stipulate how or if one child has the right to sell his or her shares, and for how much, and to whom. “One tip,” AARP advises: “Define the universe of eligible owners as lineal descendants and not spouses. That prevents a divorce from creating an ownership battle.”
A Family Conference
As we said, these are just three of the seven “money minefields” described in the AARP article. Do you want to share money held in an IRA? Do you want to know how to set up a charitable foundation? What if that extra car, boat or RV is gathering dust – can you give it away to one of your children without ticking off the others? Finally, how do you pass along wealth via stocks or mutual funds? The AARP article does a pretty good job of walking you through these scenarios so, as the article says, you can “bestow your money smartly – and maintain peace in the family.” Our recommendation at AgingOptions is to arrange for us to host a family conference where all the interested parties are invited to meet in a neutral location for a time of honest and forthright communication, planned and guided by our professional legal team. Contact us and we’ll explain further how a family conference can benefit you.
So what’s the bottom line? Our take-away from the AARP article is that if you’re in a position to give generously to your family, it’s time to take the process seriously and to plan accordingly. Here at AgingOptions we have similar advice to offer when it comes to retirement planning, namely that it’s time to stop sitting around hoping your retirement future will somehow take care of itself. Instead, you need to get serious and come learn the facts about a breakthrough in retirement planning called LifePlanning. Can a retirement plan show you how to make sure your medical, financial, legal, housing and family “threads” are all woven together into a seamless fabric? Yes, if it’s a LifePlan from AgingOptions.
For a simple and cost-free next step, come join Rajiv Nagaich from AgingOptions at an upcoming LifePlanning Seminar. We offer these throughout the region – so for dates, times and locations, visit our Live Events page where you can select the seminar of your choice. Then register online, or call us for assistance. We’ll look forward to meeting you soon!
(originally reported at www.aarp.org)