Can I Afford To Retire? Part 2

Retiree Cash Flow
20 Year vs Current

Skip's Thoughts on Fiduciary Regulations (2)

Talking to Your Parents (or Kids) About Money

I got a great question the other day.   A client asked how to talk to her parents about their money.  I’m writing this as an answer for her but the message applies to both generations.

Some parents readily share their financial and succession planning.  Some don’t – either because they keep it to themselves or because they don’t have a plan.  

That puts you in a bind.  What your parents want but don’t say, they probably don’t get.  You could be asked for significant personal time and financial commitments.  Resentments arise from guessing on short notice when you could have had facts years before.

I recommend you ask forcefully enough to get their attention – maybe something like, “Mom, have you thought about what you might need from us down the road?”  Be tactful but let him/her/they know this isn’t idle chat.

Responses vary widely.  Sometimes, parents open-up and the family gets closer. Other times, dad just won’t talk.  Keep working at it.

This isn’t just about helping them.  It’s about protecting yourself.  Together, we crafted a plan for you to retire, educate your kids and meet your commitments.  It didn’t include ending your career to rummage through your parents’ basement for old tax records.  It’s hard on siblings too.  Usually the closest and/or best-heeled bear most of the load and they will resent it if nobody asked first.

These are sensitive conversations but you have to have them.  A botched succession can wipe-out years of careful investing and do irreparable damage to your family.  I’ve seen it more times than I’ve liked.

Let me help.  I can act as a facilitator with your family since I know a lot of the things you need to discuss.  I can also introduce you and your parents to legal and tax advisors when you decide who does what.  

Just call if you need me.  Skip 

PS  Ask me about a “Family Love Letter”.  sh   

Bonus blog:

Family succession is a business.  There are things of value.  There are things you need to keep going.  Personnel skills are not uniform.  Neither are expectations.  Some of the kids might benefit from remedial training before they inherit a multiple of their current net worth.  There may also be ambitious third husbands to manage.

You won’t get all of the answers in a day but start the process.  sh

As always, the opinions expressed here are mine and don’t necessarily represent the views of LPL Financial or anyone else. 

The Qualifying Charitable Distribution

Using the Qualifying Charitable Distribution (QCD) for IRA’s

There is a tax provision that allows people over 70 ½ to transfer up to $100,000 a year from their IRA to a qualifying charity as a direct pass-through.  It usually doesn’t affect your other taxes and can be used to satisfy your Required Minimum Distributions.  In other words – the state and federal governments never see a dime.  

I’d like to come at the opportunity from two different angles.  The first is for people who are both generous to charity and to their family.  The second is for leaders (or soon-to-be leaders) in those charities.

For families: think of this more as succession planning than current tax planning.  

Your family inherits your assets in three buckets.  Bucket one has things like real estate, securities and personal possessions.  Your heirs may get a step-up in the cost basis so all capital gains are forgiven.  Assets pass at 100 cents on the dollar.

Bucket two has life insurance.  Structured correctly, your family gets those benefits income tax free.

Bucket three has assets that are always taxable like annuities and retirement accounts.  If you don’t pay the tax, your heirs will.  Your children (the employed ones) could lose up to 40% of the value to the government.

Bucket three is the low-hanging fruit for charitable giving.  If you want to do right by your church or cause, give them assets with limited value to your taxable heirs.  Leave your family the assets they can keep.  The QCD is a good start.

At your annual financial planning review, make a list of what’s in your three buckets.  You may also find things in the first two you can do without now and enjoy the deduction.  Some gifts are best given from a warm hand.

For inspiring charitable leaders:  This isn’t about using the QCD – it’s about selling it.

You know people who could contribute a lot more than they have.  Next time you ask for a donation, DO NOT ask for cash!

Try this instead:

Hello Jeff, It’s campaign time again.  Will you be using the new IRA direct transfer this year?

Huh?

It’s a loophole that allows folks to transfer money directly from their IRA to charities like us without paying any taxes.  You can use it to avoid taxes on your required distributions too.  It’s limited to a hundred thousand dollars a year – but we can work around that.  Handy estate gift too …

Er, uh ….

Why don’t you and Helen join us for lunch next Thursday?  I can tell you how we’re taking advantage of the opportunity.

See you then.

Let’s break this down:  In a few sentences, you significantly raised the bar, brought new assets into the conversation, broached death and taxes tactfully, let him know he’s not alone and closed for the “ask” appointment.

Does it matter if he isn’t 70 ½ yet?  No.  Taking money from an IRA and deducting it works about the same as the pass-through for most people in their sixties.

Does it matter if he doesn’t even have an IRA?  No. There may be things in buckets one and two that offer nice write-offs.  

What does matter is you just started a peer-to-peer conversation about his serious money.  Cash is a byproduct of assets.  Go for the source!

BTW, big checks like this make nice challenge grants to help other contributors find their wallets.  Leverage them.  Maybe Jeff can make a couple calls.

Your pancake breakfast isn’t going to restore the chapel.  Be inspirational!  

If I can help explain this to friends who serve, just say when and where and I’ll be there.

As always, the opinions expressed here are mine and don’t necessarily reflect the views of LPL Financial or anyone else.  This is generic information so definitely run this by your tax and legal advisors for your specific situation.  They may have even better ways to have your cake and eat it too.  sh   

Organizing Your Financial Assets

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