3 Strategies to Increase the Value of Your Financial Legacy What will happen with the financial gains you've acquired over your lifetime after you pass? Here are a few things to consider. BY RICH M. GROFF II
Like retirement savings it's better to plan earlier for your financial legacy than later.
“ Itís very easy for someone to think theyíve covered all the bases, when in reality there are potential pitfalls they didnít know about or didnít count on.”
After a lifetime of accumulating money, itís common to start thinking about your legacy and what you want to leave to your children, grandchildren or a favorite charitable cause. However, despite the dollar signs you see on your investment and bank accounts, thereís no guarantee your loved ones or your chosen charity will get the full amount.
Uncle Sam is lurking to snatch a sizable share.
Itís important to plan carefully if you want to make sure that as much of your money as possible goes to the people or organizations you choose. Itís very easy for someone to think theyíve covered all the bases, when in reality there are potential pitfalls they didnít know about or didnít count on. The good news is that there are plenty of options people can consider that will allow them to leverage those gifts so that the person or organization receiving them gets the maximum amount possible.
Here are a few of those options:
Leverage your IRA to increase your legacy. When you leave a traditional IRA to your loved ones, they pay a hefty tax. Fortunately there are ways to eliminateóor at least mitigateóthe tax bill. For example, you could use some of the IRA money to buy a survivorship universal life (SUL) insurance policy that would pay enough to your beneficiaries to offset the amount of the taxes. There are additional ways of using an SUL where you can eliminate the taxes, give to charity and still increase what your loved ones receive.
Make a charity your life-insurance beneficiary. People usually think of naming a spouse or a child as the beneficiary on a life insurance policy, but the money doesnít have to go to an individual. You can direct that the policy be paid to a charity instead. The main downside to this approach is that thereís no income-tax advantage for you.
Donate your life insurance policy. This strategy does come with some tax advantages. Giving a life insurance policy to a charity as a gift can provide an income tax deduction now, and can significantly reduce the taxable estate of the person who made the donation when that person dies. The charity, meanwhile, receives the full face value of the policy.
Many people have a good idea who they want to benefit from their financial legacy, but just donít always know how to make it happen. If you lay out all your wishes to a financial professional, he or she should be able to help you come up with a plan that will meet your legacy goals.
Rich M. Groff II (www.TheMoneyMD.com) is a third generation Certified Financial Planner and entrepreneur. Although he has worked with people from all walks of life, he has focused his practice primarily around high income and high net worth professionals. Groff prides himself in assembling the best financial team to address and solve each individualís needs, such as tax-reduction strategies, asset protection, legacy and business succession planning or estate-preservation techniques. He has a bachelorís degree in business administration/finance from Central Michigan University.