Legacy Gifting For The Holidays!

By: Jason ValaVanis, CFP®

            Whether it’s for your Christmas, your Hanukkah, or your Kwanzaa – it’s the time for generosity. Every year we possess the same opportunity to escape from the grind of frugality, and we’re reminded that the true path to happiness is all about giving. This year is another chance to give to those you love – your family, your children, or a favorite charity.  In this short article, I’ll illustrate how one of my clients gave a meaningful monetary gift to one of her children to help him retire more comfortably.

Gifts with Strings

           Sometimes the best gifts have conditions attached. Parents will often gift chunks of money to their children only to witness a series of foolish spending events while the balance dwindles until it is exhausted and gone forever. Well, there is an answer to this dilemma: give cash to your children in the form of a retirement account dedicated to growing without taxes for many years! Some will ask, “Is this legal?” The answer is, “most definitely, and it happens all the time.” One of the most popular scenarios involves a tax-deferred annuity.

           My client, Claire, invested $100,000 into a Fixed Indexed Annuity for her 47-year-old son, Gabe, in 2010. With this investment, all market gains are added to the principal and can never be lost. Also, there is no risk, even if the market goes down. She maintains control of the account by managing the annual decisions, and she receives the statements at her home, but the account is 100% owned by Gabe. He knows of the account but does not have ready access to the funds without going through mom – hence the “strings.” Since 2010, the annuity has grown considerably, and in 7 more years, we expect Gabe will have approximately $300,000, or more, to assist in his retirement.

Full Ownership

The best part is ownership! Gabe owns the funds explicitly. In the event of Claire’s death, Gabe will take complete control of the account as he sees fit. Isn’t this a more meaningful gift than plopping $100,000 into Gabe’s bank account without any strings attached? Some parents worry about the annual gift maximum of $17,000 that the IRS has published. This is not an issue.  Never let this idea get in the way!

           This $17,000 limit is often misunderstood. The IRS only wants to know how much over the $17,000 limit is gifted to each recipient every year. In Gabe’s case, Claire reports on IRS Form 709, the Gift Tax Return, and the exact amount exceeding the $17,000 exclusion, which is $83,000. There is no tax due, only the reporting of the gift. Claire has a lifetime limit of $12.92 million of reportable gifts that she can give Gabe before one penny is owed in tax. Some taxpayers never even report these gifts because their estate is nowhere close in value to the $12.92 million threshold, but I don’t recommend doing that. Always follow the rules — it’s usually painless anyways.

           Consider a tax-deferred annuity with no chance of market losses because the investment will never go backward, and your loved one will never owe any tax as long as the funds stay invested. This holiday is your opportunity to do a wonderful thing – give big!

Uncertainty

           Our Country is becoming excessively more competitive and puzzling.  The USA has a severe problem with monetary uncertainty. In other words, the American Dream is systematically being eradicated with a myriad of obstacles, such as unpredictable taxes, mounting fiscal deficits, increasing regulations, inflation, high interest rates, confusing political policies, disappearing pension programs, etc.  It makes sense to part with funds you don’t necessarily need for yourself and help boost the financial health of your darling children – if they deserve it.  Trust what I say; it is substantially more satisfying to give generously when you’re alive than when you’re six feet under! Remember, you can’t take it with you, you can’t send it forward into the next life, and recently discovered; you can’t come back and get it.

Call me if this plan looks good to you. I’ll showcase the best programs with the best companies and let you decide. This holiday season can be a season of meaningful giving for your loved ones.

Jason ValaVanis is a Board CERTIFIED FINANCIAL PLANNER® and, for over 34 years, the Co-owner of ValaVanis Financial, in downtown Melbourne and Rockledge. Jason specializes in lifetime income planning for Retirees while protecting principal. Jason can be reached at 321-956-7072