Providing for Grandkids Without Risking Your Retirement
Many retirees want to help their grandkids. How can you do it without risking running out of money for retirement?
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Full Transcript below:
00;00;00;00 - 00;00;26;25
Unknown
And welcome back to 30 Minute Money. It's the podcast that delivers action oriented, smart money ideas and bite sized pieces. I'm Scott Fitzgerald with Steve Wershing of Focused Wealth Advisors joining me in studio again. He's got. Nice to see you. Nice to see you too, sir. We're going to be talking about, let's see how to provide your grandkids without risking your retirement.
00;00;27;00 - 00;00;48;19
Unknown
Yep. Just a very well thought out subject matter for us, I appreciate that. Yeah, well, it's something that a lot of retirees want to do is they want to obviously, they want to have enough for retirement, but they also want to help out their grandkids. So sometimes they're a little ways that you can help. And sometimes there are ways that you can help that will not, not risk your own cash flow.
00;00;48;21 - 00;01;14;28
Unknown
And it's interesting because this is kind of something that I've always I don't have any grandkids yet. But I've been thinking about it and my, my relationship with retirement accounts is, as we both know, it's a little bit awkward, just because of my my own employment history. So I've been thinking about this lately because my kids are getting older, and before I know it, they're going to be having kids, and I'm going to be like, what am I going to be able to do?
00;01;14;29 - 00;01;41;19
Unknown
What am I going to be able to give her, you know, help out the grandkids? Like like my grandparents helped me out? Yeah. Well, and there are some there are some ways that you can just give them money and little bits that may help. So we can talk about those first. So, you can make small gifts and help them along the the first, of course, is that you can, you can have a 529 account, a 529 plan, or you can, give money to, their parents.
00;01;41;19 - 00;02;06;14
Unknown
529 plan that's set up for them. And they're, you know, low, you know, you can give very small amounts to that and you can do it consistently. And then it comes to that gives them the benefit of doing it in a very tax advantaged way. So that's one way that you can help in a small way. And then you can also make gifts sometimes, sometimes people worry about having enough in their, in their accounts overall that they may run into estate tax problems.
00;02;06;14 - 00;02;31;21
Unknown
And so sometimes, you know, retirees actually want to give as much as they can away. And you can give give away up to $15,000 per year, per donate, per donee, before it becomes a taxable gift. So you can systematically deplete your estate so you can avoid estate taxes. But what we really want to talk about a little bit more is different ways that you can help them out in the long term, but that where you still keep the money.
00;02;31;24 - 00;02;58;10
Unknown
So if you need it, you've got it. And if it turns out you did not need it, it would go to them. The simplest way, of course, is to include them in your will. So, you know, many couples will name each other as their beneficiaries, but you can carve that up. So, I mean, you can include you can include your grandkids as smaller beneficiaries in your will.
00;02;58;10 - 00;03;20;00
Unknown
You can give them a little bit here and there. You can do the same thing with beneficiary designations on other accounts. So on your retirement accounts, for example, you may choose to make your spouse, as an example, your 100% primary beneficiary. But you know, you may if if your spouse is not going to need as much, if you're not there because you won't be eating, you won't need to buy clothes, you know, that kind of stuff.
00;03;20;00 - 00;03;40;29
Unknown
So, you know, you might leave the substantial portion of it to your spouse, but then you can list your grandkids as as beneficiaries for smaller amounts, 5%, 10%, something like that. You can also do that on life insurance. So there are lots of retirees that have an older life insurance policy. Maybe they bought it 30 or 40 years ago.
00;03;41;01 - 00;03;58;26
Unknown
Maybe it was one of those old whole life policies that they've paid for for so long that it's now paying for itself, and they're not putting any money into it, but they're also not using it. They're not they don't need it. And so you can make grandkids beneficiaries on that life insurance policy. And that way they get some money.
00;03;59;01 - 00;04;19;18
Unknown
And it's assets that you're actually not really using at the moment. It's interesting because you bring this up and for some reason in my in my mind it was leaving money to beneficiaries was only in a will like that was the that was it. Right? It was it was limited to wills. And you've obviously, desired other options.
00;04;19;20 - 00;04;44;12
Unknown
Right. Well and this is, it's a, it's, it's a good point that you make because people think about that. But really these days really the most, most of the value of most people's estates goes around the. Well, it doesn't go through the well, because anything that has a beneficiary designation on it, which could be retirement plans, life insurance policies, if you've got a transfer on death policy or a transfer on death account, all of those things don't go through the will.
00;04;44;13 - 00;05;05;04
Unknown
They go straight to the beneficiaries. Okay. So you can just, you know, they include your grandkids in those designations. Another thing that you can do is if you want, if you want assets to go to the grandkids when you don't need them anymore. But but you want to continue to have access to them. Now you can create a you can create a living trust.
00;05;05;06 - 00;05;26;09
Unknown
And what that means is that you set some money aside into an account. It's still yours. You can still access it. You still use it, but that when you pass away, it does not go through your will. It goes straight to the beneficiaries. And so you can create one of those and include your grandkids as beneficiaries on that living trust.
00;05;26;12 - 00;05;51;15
Unknown
And that's one of those things where you can designate whether or not you know, they have to be 21 or various types of things that they have to be before. Right. And one really nice thing about a trust is you can also then, you know, you can also dole it out over time. So you if, if somebody is a beneficiary on a life insurance policy or a retirement plan, it just goes straight to them.
00;05;51;17 - 00;06;09;07
Unknown
But if it's in a trust, you can create a lot more rules around it. So you can say, when I pass away, my grandkids will start getting this when they reach a certain age and they'll get this much per year, or they'll get this much when they turn 21, and that much when they turn 25, and this much when they turn 30.
00;06;09;09 - 00;06;26;11
Unknown
And so they're using a trust. You have all kinds of flexibility about how you how you distribute that and when. Yeah, that's what I would prefer to do because I can I'm thinking back and I think it would have been great if, if but now I didn't get a lot from my grandparents. They just weren't wealthy people. Yeah.
00;06;26;11 - 00;06;56;12
Unknown
But you know, if in another world there was, well, Scott, we'll give you, you know, 20,000 when you turn 21 and then we'll give you this much when you turn 30, so that you have that to look forward to. And it's like the gift that keeps on giving. Not to get corny, but it is, you know, if you if you're 21 and you get something and you get all the money at once, a lot of times, unless there really is really discipline, that kid's going to blow through that money before it, you know, before they know it.
00;06;56;19 - 00;07;20;18
Unknown
That is true. And and if they wait and they get doled out over time where they become more, you know, responsible and mature, I think that's a smarter way to go. Yeah. Well, and and, you know, you bring up a really important point. The statistics on inheritance are not pretty. Now, I haven't seen the updated ones in a while, but the last time I heard any statistics, something like the, the average inheritance in, in, in America was gone in about 18 months.
00;07;20;19 - 00;07;35;26
Unknown
Oh. And so. Oh, my. That includes people who are adults, right. The. Yeah. Yeah. And but it just, you know, for all kinds of reasons. But yeah. So I mean, if you're doing it through a trust and you can give it to them a little bit at a time, you know, they get they get a second bite of the apple.
00;07;35;26 - 00;07;50;01
Unknown
You know, you can create the scenario where you can let them screw up the first one and then the second one. Well, maybe they'll screw it up, but at least they might give pause for just a minute and saying, well, you know, I didn't do it that well last time. Maybe I should think about how I do this one a little differently.
00;07;50;04 - 00;08;13;11
Unknown
How how in-depth do these trusts get when you can you require that they, you know, complete a course on financial well-being or financial responsibility or something like this and get that in depth? Or is it just an age limit type of thing? I have not seen that. Not that it's a bad idea. Well, the thing about trusts is you can do almost anything you want with a trust.
00;08;13;11 - 00;08;31;16
Unknown
So, I mean, you could write all kinds of crazy things in there. The more you try to put in there, the more complicated it gets and the more expensive it gets here. So it's probably not worth going too far. But. But you can do you know, you can do certain things. You can say, you know, they get this much a 21, they get this much more if they graduate college.
00;08;31;22 - 00;08;53;20
Unknown
You know, you can put a couple of things in there. I wouldn't go too far with it, for all kinds of reasons. Not not the least of which is unintended consequences. Sure. I remember there was one trust when I was a younger financial advisor. There was one trust that a bank was really struggling with because the trust, you know, they they tried to protect the beneficiaries by making sure that they invested conservatively.
00;08;53;27 - 00;09;11;26
Unknown
And so they required that the trust corpus could only be invested in railroad bonds. That kind of backfired. So you want to be careful about how far you go with it, but but you can't. But you can put in all, you know, there's a lot of control that you can that you can exert in the protection of those beneficiaries.
00;09;11;26 - 00;09;21;05
Unknown
So, you know, if you have enough and you want to set some aside, whether it be a living trust or a trust that's in your will, you can do a lot with it.
00;09;21;08 - 00;09;39;12
Unknown
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00;09;39;15 - 00;10;00;12
Unknown
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00;10;00;14 - 00;10;22;03
Unknown
Focused wealth advisors.com/publications. All right. Well, I trust you're going to make the right decision. Hey I heard what you just said there. You like that. That was great. 30 minute action item. 30 minute action item is, think about how much you want to leave your grandkids. All right, there you have it. Another episode of 30 Minute Money in the books.
00;10;22;03 - 00;10;50;28
Unknown
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