Kansas and Missouri Estate Planning

How Can I Help My Grandchildren with Financial Readiness?

It is never too early to set your grandchildren up for sound financial stewardship.

Did your grandchildren have summer jobs?

Perhaps they work part-time during the school year?

According to the recent Kiplinger Retirement Report article titled “Seed a Roth IRA for Your Grandkids,” if the answer was yes to either of these questions, you can give money to a Roth IRA for them.

How will this help them?

You will teach your grandchild the value of saving.

You can contribute on their behalf so they can keep the money they earn and use it for a car or other needed items.

Also, your grandchildren will have the beginning of a nest egg.

How can they use the money?

They could take tax-free retirement income.

They could also withdraw it before retirement when purchasing a home or some other worthy purchase.

How much can you contribute?

The amount depends on how much your grandchild earned.

In 2017, the maximum total contribution to a Roth IRA was $5,500.

If they earned less than this, then they could only contribute up to the amount actually earned.

Why is a Roth IRA a particularly good way to give money to your grandchild?

The money has the potential to grow significantly before your grandchild retires.

For example, if your grandchild is 15 and earns $2,000 over a year, then you can contribute $2,000 to a Roth.

Let us say the grandchild worked four years.

Assuming for illustration purposes a six percent interest rate, the account would grow those contributions made over four years to more than $143,000 by the time your grandchild turns 66.

Are there any other stipulations you should know about?

Yes.

These contributions will count as gifts.

You will need to make sure you do not give more than $14,000 per grandchild in a year, unless done so as part of a strategic wealth transfer plan.

If you do, then remember to file a Form 709 Gift Tax.

Although you can front-load the account based on the expected income of your grandchild, you need to be aware of the actual amount he or she earned.

If he or she earns less than expected, then you will need to remove the excess from the account before the tax filing.

Another benefit?

If you are concerned about the financial decisions your grandchild might make with the money while in high school, you may be in luck depending on state law.

You could have control of the money in the account until your grandchild turns 18 or 21.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Kiplinger Retirement Report (May 2017) “Seed a Roth IRA for Your Grandkids”

Before Giving that Inheritance to Grandchildren ....

I always enjoyed reading Ann Landers in our local paper as a lad. Although I disagreed with her positions on some social issues, it seemed she really understood basic family dynamics. 

One of my all-time favorites? When Ann responded to a disgruntled grandmother whose spoiled, "take-it-for-granted-grandchildren" never acknowledged the checks she would send them for birthdays, as Christmas gifts and for graduations. 

Not even so much as a "thank you," mind you!

Ann's advice?

Next time "forget" to sign the checks before you mail them.

I told you Ann Landers was a wise soul.

While we are on the subject of giving to grandchildren, a recent article from The Motley Fool, titled “Thinking of Gifting an Inheritance to Your Grandchildren? Keep These 3 Things in Mind,” has some trustworthy tips to consider.

I recommend reading the original article, but here is a sampling: 

Set up a Trust. Who wants to see the grandchildren squandering their inheritance? After all, it took hard work and thrift to create the inheritance in the first place, yes?

Very few young people have the appropriate financial skills to properly manage money. In fact, a 2012 study found that 23% of millennials spend more than they earn.

Hmmmm. Not good.

Then, again, the parents of these millennials may not be any better stewards when it comes to their own financial resources.

Sad, but true.

The original article suggests setting up a trust. Not only is this a wise move if you intend to pass along a substantial amount of money, but it can help you avoid probate in the process.

Through a trust you can control how and when an inheritance can be distributed to your grandchildren.

Not only can this keep them from being overwhelmed, but it can give them a chance to mature and develop their own financial stewardship.

That way your grandchildren can better handle the inheritance should they receive any outright distributions later on. 

Know about Estate Tax. When leaving an inheritance to your grandchildren, remember the estate tax.

This tax will be applicable if your total estate is valued at more than $5.43 million for 2015 (or $10.86 million for a married couple). If this applies to you, consider giving the grandchildren money while you are still alive.

The IRS allows a $14,000 tax-free gift each year per person, and that works for both you and your spouse ($28,000).

There are many ways to skin the proverbial "wealth transfer cat" (sorry cat lovers, it is just a figure of speech).

Contact an estate planning attorney to review your estate planning and estate tax situation.

And, remember: Don't sign the checks!

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

 Reference: The Motley Fool (April 26, 2015)“Thinking of Gifting an Inheritance to Your Grandchildren? Keep These 3 Things in Mind”