We all have the ability to leave various legacies. However, few of us take the time or use the opportunity. While I have been discussing various legacies with clients for years, this article is about creating a financial legacy for those you love.
Why create a financial legacy? Many wise people believe Social Security may not be available in its present form when our children retire. Pension programs are changing and, in certain cases, even disappearing altogether. Without these two sources of income, most people will have a difficult time retiring.
If the predictors are correct, 401(K)s, IRAs along with personal savings and investment will be what people will need to rely on for retirement. That said, will your heirs be able to retire without help?
The tools are available to transfer wealth and leverage existing assets. So, consider the following facts. Most people pass away with assets in IRAs and 401(K)s. Furthermore, many people leave behind investment programs that will be taxed either as income or as estate taxes. Also, many people’s assets will be taxed in the same ways. For some, this means an IRA or 401(K) may only net an heir 30 percent of the original asset’s value. This is a sad but rarely explained reality.
Assets can be used to fund proper trusts and/or second-to-die insurance. The net effect can be dramatic. An asset that would normally be cut in half can be multiplied. The end result might be that a very modest inheritance can become a significant inheritance and may even be tax-free! That inheritance can create a retirement benefit for a child where, perhaps, none would otherwise exist.
This type of planning is not new. In the past, only the super-wealthy took the time to consider it. Today, people of all economic strata are looking at leaving legacies for their children and grandchildren.
Seek out a financial advisor who is well versed in total financial planning, not simply investment planning.