Do you desire to leave a legacy to your kids and grandkids after you pass away? While most will agree a true lasting legacy goes beyond money, we are about to experience the largest transfer of wealth (estimated to be over $30 trillion) over the next few decades.
Increasingly, more people are not as concerned about leaving a large inheritance for their kids. Instead they are seeking ways to “spend” their kids’ inheritance with them while they are still living. The goal is to be a blessing and have experiences with their family.
If you are in the position to bless your kids and grandkids, here are five creative ways to leave a legacy:
1. Chip in for the cost of education.
Providing an inheritance is a great way to leave a legacy, but legacies can also be formed while you are still living! Since the cost of college education has gotten so high, helping your kids or grandkids with tuition can leave a lasting impact.
Grandparents interested in helping their grandkids with the cost of college can start by opening a 529 Plan for each grandchild while they are still young. You can contribute to the 529 Plan periodically, and withdrawals for qualified education expenses are tax-free.
NEXT STEP: Check here to find your state’s sponsored 529 Plan(s). You or the child’s parent are the owner of the account, and the child is the beneficiary. Clients of Stewardship Financial can reach out to your advisor for next steps.
2. Start a Roth IRA for grandkids when they get their first job.
A unique way to leave a legacy is to give your grandkids a head start on saving for their most expensive life goal—retirement.
Once a child has earned income (even if it’s a summer or after school job during high school), they are eligible to contribute to a Roth IRA. However, it’s unlikely a high school or college-age student will want to put that hard-earned money into a retirement account. That’s where you come in. Not only is it a practical way to bless them, the time value of money says this is a financially rewarding step for their future retirement nest egg.
NEXT STEP: Since minors cannot generally open an investment account, a “Minor Roth IRA” can be opened with an adult (usually the child’s parent) to serve as custodian until the child is 18. The maximum contribution is currently $6,000 or up to the child’s taxable compensation for the year, if less.
3. Buy a family vacation home.
Vacation homes can be expensive, and if you don’t frequently visit you might wonder if it was worth the financial investment. Inviting your family into the picture can help ensure more use of the house and provide an inexpensive getaway for kids and grandkids. Furthermore, your legacy can live on as the vacation home stays in the family for multiple generations!
NEXT STEP: Schedule a meeting with a Stewardship mortgage loan advisor to find the best options to finance a vacation home.
4. Give your heirs an annual cash gift even after you’re gone.
Did you know you can use life insurance to continue giving gifts to your loved ones on their birthdays or other special occasions? While most life insurance policies pay a one-time payment to your beneficiaries, some providers allow you to determine ahead of time how the death benefit will be paid.
Usually, if you want to provide a set schedule for beneficiaries to receive funds it is done by setting up a trust. The benefit of using life insurance this way is that it can be done without a trust.
For example, a grandparent’s life insurance policy could provide a $10,000 payment for 25 years to a grandchild instead of a similar lump-sum payment. Not only might the child not be financially ready for such a financial windfall, but the grandparent’s legacy lives on every year that child receives the payment.
NEXT STEP: Applying for life insurance at a later age can be complicated, especially when used for estate planning purposes. Schedule a meeting with a Stewardship life insurance advisor to learn how to structure a policy to fit your goals.
5. Make things equal using a life insurance policy.
If you own a business that you plan on passing down to one or more (but not all) of your children, it can be problematic if your ultimate goal is to split things equally. A business is illiquid, and some kids might not have any interest in taking it over. Things can get weird if the value of their inheritances are wildly different. Life insurance is ideal for ensuring a more equitable outcome.
“Estate equalization” is the process of using a life insurance policy to provide a tax-free death benefit that can be available to your heirs that won’t receive ownership in the business.
NEXT STEP: As a business owner, you will likely need input from your Stewardship financial advisor, your CPA, and attorney. Schedule a meeting with a Stewardship financial advisor to get started.
Even if your goal isn’t to leave a large inheritance, don’t let your legacy be an afterthought. Think of creative ways to bless your family even while you are still with them.