Estate planning isn't just for the ultra-wealthy. Anyone can leave a meaningful legacy by gifting assets to loved ones and causes you care about.
A thoughtful legacy plan does more than pass on money. It creates opportunity, it changes lives for the better. When done right, it can help minimize taxes for you and your heirs.
If you don’t have an inheritance plan or charitable giving strategy, here are some ideas to get you started:
For many people, gifting money to adult children and setting aside money for loved ones is their top priority. You can give money to your heirs while you’re still alive, but there are other ways to make a long-lasting positive impact, such as:
A good education is increasingly expensive. A 529 plan is an excellent way to reduce the financial burden for someone you care about.
Contributions grow tax-free, so even a small gift can have a big impact if allowed to grow for many years. Withdrawals are tax-free if the money is used for qualified education expenses such as:
You can open a 529 plan for a child, grandchild, or even someone you're not related to. There are no income limits for contributors, and many states offer tax deductions or credits to taxpayers who put money into state-sponsored 529 plans.
If you’re concerned your beneficiary won’t need the funds, don’t worry. Under certain conditions, 529 beneficiaries can roll over up to $35,000 from a 529 into a Roth IRA they own without paying taxes or penalties. The money will give them a head start on retirement savings and up to $10,000 can also be withdrawn without penalty to buy or build a first home.
One of the conditions for the rollover is that the 529 must have been in existence for at least 15 years. To learn more about setting up a 529 plan, contact a financial planner.
Roth IRAs offer tax-free growth and tax-free withdrawals in retirement. Contributions can be withdrawn penalty-free before age 59 ½ and up to $10,000 can be withdrawn for a first home purchase.
You can set up a Roth IRA for someone younger than 18. The only requirement is that the minor has earned income. For example, if your 16-year-old niece earns $2,000 in a summer job up to $2000 can be contributed to Roth IRA in her name.
That small seed, left to grow, could be worth tens of thousands by the time your niece retires, thanks to the power of compound interest. As the chart below illustrates, $96,000 invested over 40 years can grow to $512,700 by age 65.
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(based on an average 7%* annualized return). The S&P’s average, annualized return has been 7.58% since 1971 and 7.9% in the past 30 years. Past performance does not guarantee future results.
The S&P 500®️ Index is a market-capitalization-weighted index of 500 leading U.S. companies, widely regarded as a benchmark for the overall U.S. equity market; index returns are unmanaged and cannot be invested in directly.
A Roth account is also a great way to introduce young people to retirement savings and show them the benefits of saving for retirement early. If you have questions about setting up a Roth IRA for a minor, let us know. We’re happy to help.
Buying a first home is a major milestone and one of the biggest financial challenges young people face today. According to the National Association of Realtors' most recent data, the median age of first-time homebuyers is 38 years old, which is much higher than previous decades. According to experts, the most common reasons for the increase include student loan debt and a lack of affordable housing.
Through thoughtful estate planning, you can help the next generation become homeowners earlier in life. Helping a loved one buy their first home doesn’t just ease a financial burden; it can change the trajectory of their life. The impact of this assistance can multiply over generations as homeownership creates stability for your family.
One way to earmark money for a first home purchase is through a trust. When setting up the trust, you can include clear instructions on how and when the funds can be used. Your designated trustee(s) will ensure your wishes are followed.
Unlike a simple will, trusts give you more control over how and when your assets are distributed. For example, rather than heirs receiving assets soon after you pass, a trust can give money to family members on birthdays, holidays or other special dates. This creates a tradition that keeps your memory alive while providing ongoing support.
Different types of trusts serve different purposes. For example:
Our experienced wealth management team can help you create a trust that reflects your values and family situation. We can also ensure your financial gifts are as tax-efficient as possible for both you and your beneficiaries.
A financial expert can also help you maximize your financial legacy and minimize taxes — both for you and your beneficiaries. Here are some tax-smart approaches:
Every situation is different, and sometimes these "rules" should be broken. Talk with a financial advisor to discuss the best way to distribute your assets.
If you are philanthropically inclined, a Donor-Advised Fund can be a powerful part of your legacy. Contributions to a Donor-Advised Fund (DAF) reduce your tax liability right away and make a positive long-term difference.
When you donate to a Donor-Advised Fund, you receive an immediate tax deduction. Once created, you can spread your actual gifts to charities over time for greater impact.
You can also structure your DAF to continue making grants after you’re gone, creating a legacy of generosity. Consider involving your family members in the decision-making process of where your DAF money goes.
You can even name successor advisors, such as your children, to carry on your charitable vision. This teaches younger generations about causes you care about and introduces them to meaningful giving early in their lives.
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SOURCE: Cordant
For more ideas about charitable giving, download our Smart Giving Playbook.
Estate planning isn't just for the wealthy. It's for anyone who wants to make a difference in the lives of people and causes they care about. Starting early gives you more options and flexibility in how you structure your legacy. \
If you already have a trust or other estate plan, don’t forget: estate plans should be reviewed every 3-5 years or after major life events such as marriages, births, deaths or significant changes in financial circumstances. They aren’t “set-it-and-forget-it.” Keeping your estate plan up to date can ensure your hard-earned assets are protected and distributed according to your wishes.
If you'd like to explore how to start or refine your legacy plan, give us a call at (415) 541-7774 or contact us online. We’re here to help you turn your intentions into lasting impact.
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