How to Keep Your Money in Your Family

Whether you have your family in mind, or lifelong friends, you want their futures to be safe and secure. You want the people you love to prosper in life. And what better way to show your devotion and appreciation than by ensuring your hard-earned money and investments go to them—after your passing?

So, how do you keep your money in your family or within your circle of closest friends rather than lost to legal fees or government portions?

Estate planning is the key. Why is planning your estate so important?

  • You avoid probate court. In many states, probate fees can reach 5% of the value of the estate. For an estate valued at $5,000,000, can you imagine paying $250,000 in fees?
  • Planning your estate will lessen the tax burden on your heirs. If you die without a will, the laws of your state, not you, govern how your estate is distributed. However, inheritance laws generally favor spouses, domestic partners, and blood relatives. But why leave it to the legal system to decide?
  • Many people who are beginning to plan their estates seek professional financial advice following the loss of a loved one or a close friend. While wise, the timing may be off. The best time to start estate planning is immediately—to avoid potential worst-case scenarios, such as mental decline or sudden death of a spouse or loved one.
  • Comprehensive estate planning helps protect beneficiaries, both adult and children. With adults, a plan helps guard against bad financial decisions later. With children, it designates guardians or conservators to protect minors’ financial interests.
  • A solid estate plan with asset protection provisions may help shield your assets from potential creditors. Even if you don’t have creditors on your personal side, an estate plan is beneficial for business owners who want the business side of their estate handled properly as well.

Here are 5 ways to maximize your family money in the here and now:

  1. You can spend your money and your assets, which will ultimately reduce your tax burden and benefit your family. Obviously, your first priority is to your loved ones, not to bolstering government coffers. The problem, however, is that you may live a good, long life, and your goal is to ensure you don’t outlive your wealth. This option is worthwhile if you have plenty of cash reserves and a robust estate.
  2. Gifts pose the same challenge if your estate and your assets have the potential for a long-shelf life. While giving to family and friends is noble, the IRS establishes restrictions on giving levels. You may give up to $15,000 each to individuals or charities before having to file gift tax returns. The maximum lifetime gift tax exemption is $11.18 million.
  3. You may lend to family members and friends. However, to stay IRS compliant, you should draft a loan note that includes the loan amount, payback date, interest rate, and any collateral or security. This enables you to avoid the IRS’s gift classification.
  4. You may pay wages to your family; 4 in 5 older Americans suffer from at least 1 chronic disease and may need care. By 2030, more than 1 in 5 Americans will be over the age of 65. The IRS allows for the paying of wages to family members, which helps build their Social Security earnings record. Services may include providing home health care or performing other household or small business-related work.
  5. You can create a life estate deed, which transfers the family’s house to a child while the parents retain the right to live in the house. Following the death of the parents, children don’t have to go through lengthy probate proceedings. The home transfers to children—beneficiaries or remaindermen—as a gift. A life estate deed may also remove the home from consideration as a personal asset when applying for Medicaid assistance for long-term care needs.

If you are unclear about your rights and opportunities to provide for your family, even future generations, let us know. We can discuss how estate planning fits into your overall financial plan.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on December 17, 2018 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.