How to Be Generous to Family and Yourself
Wednesday, January 23, 2013
Sharing with loved ones is the theme of the season.
Giving to children and grandchildren is an important financial priority that surfaces around the holidays.
ï¿½Often, we want the next and future generations to have a better and easier life than weï¿½ve had,ï¿½ explains Deborah Lauer, vice president in Wells Fargo Advisorsï¿½ Key Client Solutions Group. ï¿½This can take the form of bequests to heirs, but extended periods of unemployment, volatile incomes and other difficult economic circumstances among younger generations are inspiring numerous older individuals to give assets during their lifetimes, when there is a need and while the giver can see it being enjoyed.ï¿½
But itï¿½s also important to make sure that your generosity doesnï¿½t jeopardize your own financial security. After all, youï¿½ve planned carefully for your own retirement, and financial gifts you make now can reduce the assets you have to rely on later in life.
How can you manage these competing priorities? With open communication and an awareness of tax implications, you might be able to provide the help you want to give in a way that works for the recipient and you.
Assess Your Situation
ï¿½Secure your own oxygen mask first before assisting other passengersï¿½ is an instruction every frequent flyer knows by heart. It also applies to your finances.
You have probably reviewed your retirement strategy since the 2008 market upheavals and are adapting to the realities of investing in a slower-growth world. Have you also reviewed your estate plans in light of these changes? And are you seeing the opportunity for assets that you had earmarked for transfer later to be given today?
Your Financial Advisor can explore how parting with certain assets now might affect your future financial independence, and discuss potential solutions for minimizing the impact of removing those assets from your nest egg now.
ï¿½Itï¿½s critical for individuals to prioritize their own financial security before making gifts to family members,ï¿½ Lauer says. ï¿½Nobody wants to become a burden to their family, which can happen if you give away the assets youï¿½ve acquired to support yourself.ï¿½
Consider the Tax Implications
Tax rules are scheduled to change significantly next year. As a result, itï¿½s important to work closely with both your Financial Advisor and tax professional to make sure any gifts you make donï¿½t trigger an unexpected tax bill.
This year, you can give individuals up to $13,000 and married couples can make gifts to individuals of up to $26,000, according to the IRS.
These gifts are called annual exclusion gifts.
In addition to the annual exclusion gift, an individual may gift all or a portion of their $5.12 million gift tax exclusion without triggering a federal gift tax.
Non-cash gifts such as securities or real estate could also be given instead of cash. Medical expenses and tuition bills paid directly to the institution or service provider are tax-free, and donï¿½t count toward your annual or gift tax exclusions, the IRS says.
With the right planning, you and your team of professionals can develop a gifting strategy that is likely to achieve your desired goals without putting your finances in jeopardy.
Donï¿½t forget that your gifts donï¿½t need to be monetary. When budgets are tight, writing a check to a relative can feel like a sacrifice, so donï¿½t give until it hurts. You may discover through conversations with family that offering your time in the form of regular childcare to working parents is really whatï¿½s needed, or lending your time and expertise to helping a grandchild apply for college scholarships. These donï¿½t cost money but can buy your family real peace of mind.
Communication about money is critical within families. Once youï¿½ve established for yourself the limits on your ability to give, share with your family members the help youï¿½d like to offer and invite them in turn to talk with you about their needs.
Maybe you already know your grandson and his fiance are saving for a first home. Find out what their shortfall is.
Also, is what youï¿½re being asked to support in line with your priorities? If you greatly value education and are committed to developing your granddaughterï¿½s academic talent, you may want to offer to pay tuition directly to her school rather than giving a lump sum of cash to her parents.
If the conversation hasnï¿½t come up yet but youï¿½ve perceived a need or simply want to share wealth during your lifetime, prepare for a longer discussion. It may take a few conversations with family to figure out exactly how they are comfortable being assisted, and how you can appropriately supply that assistance.
Pride can play an important role hereï¿½on both sidesï¿½as well as each partyï¿½s sense of independence. Recognize that you may have differing values and consider before you start the conversation how those might influence your decision about giving.
 Internal Revenue Service, Publication 950. http://www.irs.gov/publications/p950/ar02.html#en_US_publink100099451
This article was written by Wells Fargo Advisors and provided courtesy of Terry R. Campbell, Senior Vice President - Investments in Chardon at 440-286-2553.
Investments in securities and insurance products are: NOT FDIC-INSURED / NOT BANK-GUARANTEED / MAY LOSE VALUE
Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.