RJG Legal

When is it Worth Incurring a Penalty for Early Withdrawal?

“Many savings and investment accounts come with rules around when you can pull out your money. However, there are exceptions in which the penalty is worth the reward. There are times when you might be able to lessen the consequences.”

You hear it all the time: “early withdrawal penalties apply.” When you have retirement accounts and CDs, it’s usually not advised. However, there are some instances when it makes sense.

CNBC’s recent article, “Sometimes, early withdrawal penalties don't apply”, explains that we dutifully follow these rules to avoid the much dreaded early withdrawal penalty. However, there are cases when the penalty might not apply to you, or times when the benefits outweigh the financial hit. You should remember that these moves should often only be made if necessary, because they place your savings in jeopardy.

Certificates of Deposit. If your CDs are growing at less than 1% a year at a bank, but the bank across the street is offering annual returns of 1.72% on their certificates of deposit, you might consider an early withdrawal, despite a penalty of three months interest. Do the math: you might be ahead financially after three months, at the other bank's higher interest rate.

529 Plans. There's no early withdrawal from a 529 plan—the tax-advantaged account that can be used for education-related expenses. That’s because there are no rules as to when you can use the money. The rules stipulate only what you can use it for, which is just education-related expenses. There’s a penalty, if you use it for other reasons. It’s a 10% tax penalty, as well as income taxes on the account's earnings. In many cases, the family’s no worse off than they'd be in a taxable account. However, you may have to repay the state income tax benefits you received for using the account. If your child does plan on going to college, the withdrawals will leave your savings with less time to compound.

Retirement savings. An early withdrawal from your retirement account is a huge black eye in personal finance. Using an individual retirement account (IRA) or 401(k) plan before the age of 59½ can mean a 10% penalty, income taxes and a depleted fund for your retirement. There are several exceptions to the 10% penalty, eliminating that expense when you withdraw early from your retirement account. However, there's confusion about when the penalty does and does not apply. For example, if you decide to retire at 56, you can withdraw from your 401(k) without any penalty. However, if you roll it into an IRA, you'd have to wait until 59½ to have your money without consequences.

Both 401(k) plans and individual requirements waive the penalty. if you're using the money for serious medical expenses, or if there's a disability or death. You can use your IRA to fund health insurance, if you're unemployed, without penalty. If you're divorcing, you may be able to use 401(k) assets without a penalty.

Reference: CNBC (August 21, 2018) “Sometimes, early withdrawal penalties don't apply”

Here’s What to Know About Money, if You’re in Your 50s or 60s

“So, you’ve got a decently-sized nest egg building, your debts are paid off and your estate is more or less in order. You’re approaching the home stretch to retirement... Let’s not waste any more time—you’ve got money to maximize.”

First, some good news: when you reach 50, you can begin making catch-up contributions to your retirement accounts. You can add an extra $6,000 to your 401(k) this year and $1,000 to an IRA or Roth. Small business owners, contractors, and those with freelance income can potentially save $61,000 in a solo 401(k). Note that limit is for all of your 401(k) accounts each year.

Two Cents’ recent article, “What to Know About Money in Your 50s and 60s,” adds that if your kids are out of the house and that house is maybe even paid off (or close to it), you can move some of that extra savings toward your retirement accounts. According to Forbes, even $1,000 extra in an IRA can make a huge difference, if you contribute it every year between 50 and 67. For example:

• 5% annual return: $26,000
• 7% annual return: $31,000
• 10% annual return: $41,000

To see if you’ll have enough retirement savings, take your total income…

• Less any contributions to retirement accounts
• Less any expenses that will go away in retirement
• Plus, any added expenses you’ll have when you’re retired
• Less taxes (estimate high, as taxes will likely to go up, not down)

That gives you your rough total.

If it’s a long way from the budget you’ve been living on, dig deeper and you can see where to make improvements.

Your 50s are the critical time, when preparing for retirement. Review your savings to see the mix of tax categories on your investments: pre-tax, post-tax, and tax-free.

If you have almost all your savings in pre-tax accounts, which decreases the flexibility to pay for retirement, consider building up after-tax and tax-free savings, so you have more flexibility once you retire. This may include investing in a Roth IRA. Consider a backdoor Roth conversion, if you make too much to contribute to a regular Roth. If you’re taking qualified withdrawals (the account’s been open for at least five years and you’re 59½ or older), then your taxes won’t be impacted in retirement, which can be a helpful strategy.

Next, if you’ve made a will already, you should check to ensure that you’ve titled your assets properly. For example, on a bank or brokerage account, you can add beneficiaries to that account, called a Transfer on Death (TOD). This works the same as adding beneficiaries to an IRA account or a retirement plan. Titling your assets properly, lets you avoid probate. It’s a faster and cheaper transfer.

Now is the time to also think about when you’ll claim Social Security. While you can claim Social Security as early as 62, it’s better financially to wait to take Social Security until you’re 70. That’s because the payout—both the monthly and over time—will be higher. However, this option isn’t for everyone. It’s one to be made with your spouse, considering your retirement plans and how much you’ve managed to save.

Reference: Two Cents (August 17, 2018) “What to Know About Money in Your 50s and 60s”

Don’t Let These Mistakes Crack Your Retirement Nest Egg

“According to a Gallup poll, 51% of non-retired Americans don’t think they will have enough money to live comfortably in retirement.”

While half of those Americans who aren’t retired believe they don’t have enough money to retire, 78% of those in retirement say they have enough money to live comfortably.

However, a Fox Business article, “10 mistakes that can sabotage your retirement savings,” advises that wherever you are on the retirement curve—whether you’re just starting to save for retirement or are already retired—there are mistakes that can poke a big hole in your retirement nest egg. Let’s take a look the list:

1. Failing to consider the effect of taxes on retirement income. You need to calculate how taxes could affect your savings. Some retirement savings plans are taxed, when they’re withdrawn. A big mistake many retirees make is believing that Social Security isn’t taxed, but 85% of Social Security can be taxed.
2. Failing to consider the effect of health care costs in retirement. This can be expensive and includes things like deductibles and out of pocket payments—not just the costs for a health care plan.
3. Failing to consider the effect of potential long-term care costs in retirement. It’s easy to forget to consider the day-to-day costs of long-term care, like assisted living, nursing homes, and in-home care. Medicare will pay for certain care for 30 days, but after that it has to come from your own savings.
4. Failing to have enough liquidity and an emergency fund. You need to have money invested appropriately for retirement, so it can be accessed when you need cash.
5. Having too much money tied up in your home. This isn’t a liquid investment, and if you have too much of your net worth tied up in your home, you may experience a lack of liquidity when you need it.
6. Starting your retirement with significant levels of debt. Pay off or reduce your debt before retirement. Otherwise, your debt can debilitate your finances.
7. Failing to plan for Social Security. There are a lot of strategies for using Social Security to maximize the amount of money you’ll receive. You can begin receiving Social Security payments at age 62. However, if you wait, you’ll see more money.
8. Spending too much early in your retirement. Trips are nice, but your money has to last as long as you do! People who spend too much during the early part of their retirement years, can find themselves in a financial pinch later on.
9. Failing to assess your risk. You need to have risk-appropriate investments in retirement. Consider your risk tolerance, since being too risk averse could eat into the value of a savings plan.
10. Thinking you can do it yourself without a professional. Work with a qualified estate planning attorney to have an estate plan in place.

Reference: Fox Business (August 3, 2018) “10 mistakes that can sabotage your retirement savings”

Are There Any Holes in Your Bulletproof Estate Plan?

“Many people think estate planning means deciding what happens to your things when you die. For that reason, many young families do not consider estate planning to be a priority. However, it may be one of the most important things that young parents can do!”

A will or last will and testament is the document in which parents can name who they want to assume care of their children if they should both die, as well as who should manage the money available to care for those children.

Wealth Advisor’s recent article, “What's missing from your estate plan?” advises that it’s not wise to assume that the same people should perform both of these tasks. Separating the people who care for your kids from those with free access to the money left behind, is often a very smart choice. If the parents’ estate plans don’t include instructions concerning the children, those left behind can have drastically different opinions about where the children should live and how they should be cared for.

When families feel strongly about those issues it also creates difficulties for the children. They’re not only mourning the loss of the parents, but now their loved ones may be at each other’s throats, in a legal attempt to gain custody that will drain resources and divide the family. However, there are some simple steps that can avoid this additional cost and emotional trauma.

Don’t leave a hole in your estate plan by omitting a document that addresses what happens to you, if you become incapacitated. A living will, also known as an advance directive, is an essential component of a complete estate plan. This document answers "end of life" questions, particularly whether a person should be kept alive by artificial means. Most of us don’t want our families making those difficult choices, so have your estate planning attorney draft an advance directive, so they won’t have to.

One other document an estate plan should have is a medical durable power of attorney, which concerns almost all medical decisions other than those dealing with end of life. If you haven’t signed a medical power of attorney and if you’re not near death but unable to make your own medical decisions, you put your family and your medical providers in a tough spot. However, if you have a designated an agent to make medical decisions, you can spare your family additional pain and emotional distress.

Reference: Wealth Advisor (August 27, 2018) “What's missing from your estate plan?”

Some Lessons to Learn from the Famous About Powers of Attorney

“Celebrities often provide the best examples of what can go wrong with an estate plan and how you can avoid major problems. That’s why the power of attorney could be the most important document in your estate plan.”

We often idolize movie stars and celebrities, but very often they can also provide us with spectacular examples of what can go haywire with an estate plan and how to avoid major problems. We’ve seen many celebrities who’ve died without having a will and the problems this has created for their families.

Here are some estate disasters that illustrate the importance of the power of attorney (POA) and other disability planning tools, says Forbes’s in the recent article, “Why Your Power Of Attorney Probably Is An Accident Waiting To Happen.”

You’ll probably recall the stories about radio personality Casey Kasem, Marvel Comics creator Stan Lee, and astronaut Buzz Aldrin. While the specifics may differ, the basic facts are similar. As a person ages and their cognitive function declines, someone has to assist in the management of their financial and personal affairs, as well as help with medical care and decisions.

The power of attorney might be the most important document in your estate plan. The POA determines who manages your affairs, when you unable to do so. It also ensures that your bills are paid, investments are managed and other important financial tasks are performed. A POA is typically part of most estate plans, but as many celebrity cases show, the principals were careless about who was designated to manage their estates and other details.

Consider these actions to minimize the chances your estate will end up facing similar issues and in disarray.

Select your agent carefully. He or she will act on your behalf under the POA. This isn’t an appointment a person should receive just because he or she is the oldest child, or because they might be upset if someone else is named. This is a person you’re trusting to diligently, intelligently, and honestly handle your finances and other matters, when you aren’t able to. Remember not to designate a person without first discussing it with him or her to be certain they’re willing and able to take the on the responsibility.

Think about appointing more than one person. One way to get an extra layer of protection and expertise, is to name more than one person to act jointly to handle your finances. It is important to understand that even this isn’t foolproof, since co-agents also can create headaches. The two individuals should live reasonably close to each other, so they can meet to discuss options and sign documents. They also have to agree on the actions to take on your behalf. Those actions might be delayed, until they can discuss and agree and then sign the appropriate forms.

Discuss POAs with your financial institutions. Many banks, brokers, and other financial firms have their own procedures for honoring POAs and they might have their own forms. You and your estate planning attorney need to work with the financial institutions to be certain of a smooth transition.

Determine when the POA is effective. A durable POA takes effect as soon as you sign it. The agent legally could use it and take actions in your name right away. An issue in some celebrity cases is that the principals believe they retain all or most of their cognitive abilities, while at least some of those around them think it’s time for others to make decisions.

Be deliberative and thoughtful in the selection of your agent(s). It’s a good idea to gradually include them in your decision-making, well before you need any assistance. That helps you judge their abilities and thinking, while introducing them to your affairs. You can also re-assess your choices and make a switch, if needed.

Reference: Forbes (August 24, 2018) “Why Your Power Of Attorney Probably Is An Accident Waiting To Happen”

What’s an Employee Stock Purchase Plan?

“Your employer may let you buy company stock at a discounted price through an employee stock purchase plan, or ESPP. If you choose to participate, these investments can boost your bottom line and offer tax advantages, depending on when you opt to sell your holdings.”

The company you work for may allow you to buy company stock at a discounted price, explains CNBC in its recent story, “What you need to know about your employee stock purchase plan.”

The article explains that the formal name for this is an "employee stock purchase plan," or “ESPP.” If it’s used right, these stock purchases can increase your bottom line.

Let’s look at how an ESPP works.

You’ll typically get an email or memo that says your employer is going to allow you to buy its stock at a discount, maybe something like 10 to 15%. If you choose to participate, the deductions are taken from your paycheck, just like your 401(k) contributions.

Employee contributions accumulate between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. Therefore, the stock is purchased in bulk at one point in time, along with other employees' contributions. These purchases typically occur every six months.

An employee can then sell those shares right away and lock in the gains from the discounted price he or she paid, or they can hold on to the shares for later.

If you'd like to hold your employer stock for preferred tax treatment, it’s wise to wait until at least one year after the purchase period and two years after the initial offer date. The gains will be taxed as long-term capital gains, which are typically taxed at a lower rate than ordinary income.

Note that there’s usually a limit to how much you can invest in an ESPP, perhaps up to $25,000 per year or 15% of your salary.

If you can afford the payroll deductions, the ESPP is a nice way to invest in your company stock at a discounted rate. However, you should balance this investment with your other financial priorities.

Reference: CNBC (August 15, 2018) “What you need to know about your employee stock purchase plan”

What’s All that Stuff in Your Wallet?

“One of the worst feelings is reaching for your wallet and finding it's not there. Panic ensues: Did you leave it at home? Drop it? Were you the victim of a pickpocket? Following our advice won't salve that panic, but it may lessen it.”

Is your wallet filled with personal and financial information? Did you know that much of that information can be exploited by identity thieves? The bad dudes just need your name and Social Security number to get going.

Kiplinger’s recent article, “The Worst Things to Keep in Your Wallet,” identifies the things you should immediately take out of your wallet. After you’ve done that, photocopy whatever’s still in your wallet. That way, if your wallet is lost or stolen, you can at least quickly and easily file reports.

Your Social Security Card. There’s no faster way to identity theft than losing your Social Security number. Criminals can use your SSN to apply for loans in your name or obtain credit cards. Never carry your Social Security card or even a piece of paper with your Social Security number on it. You should also be certain that there’s nothing else in your wallet has your SSN on it, like other forms of identification.

Your Handy-Dandy Password Cheat Sheet. Admit it, you have one. Maybe it’s taped to your computer or under your keyboard. It’s your password cheat sheet. We Americans use at least seven different passwords to access all of our accounts. It is recommended that you create individual passwords made up of unique combinations of numbers, letters, and symbols that you change regularly. How do you remember them all? For most of us, it’s a cheat sheet. One of the worst places for a password cheat sheet with your financial passwords is your wallet. Instead, you can jot down your passwords and keep them in a locked box in your house. You can also use a digital password manager.

Your Spare Set of Keys. A step beyond the lost wallet, is a lost wallet with your spare house key, along with your ID that shows your home address. It’s an invitation for thieves to break into your home. Instead, keep your spare key with a relative or friend.

Checks (Really?). OK, some people still write checks, and many of us still carry a blank check in our wallets—"just in case"—for emergency purposes. However, blank checks are risky. A criminal can use a blank check to quickly drain money from your bank account. If the stolen check isn't used, it has your bank account and routing numbers on it—a target for electronic withdrawals from your account. Just take the checks with you that you might need immediately and leave the checkbook at home.

Your Passport. A passport, like any government-issued photo ID, can be a gold mine to use against your finances, if a criminal gets his hands on it. If you’re traveling in the U.S., take only your driver's license or other personal ID. Leave your passport book and wallet-size passport card in a safe place at home or in a bank safe-deposit box. If you’re traveling abroad, carry a photocopy of your passport and leave the original in a hotel safe.

Multiple Credit Cards. How many credit cards do your really need? Just think how svelte your bulging wallet could look with fewer credit cards in it. Therefore, if your wallet is lost or stolen, you won't have as many credit cards to cancel.

Your Birth Certificate. Do you really need to carry this around? While if only your birth certificate is stolen, it won't get anyone very far. However, a criminal could use it with other types of fraudulent IDs and do some major damage to your finances.

A Bunch of Receipts. Why do you need all those receipts crammed into your wallet? Businesses are prohibited from printing on paper receipts, more than the last five digits of your credit card. However, skilled thieves could use those last five digits and merchant information on receipts to phish for the remaining numbers on your credit card! Get rid of those receipts and shred them. If you need to keep receipts for possible returns or warranties, ask the merchant to send you a digital receipt instead.

Your Medicare Card. Many retirees may have Medicare cards with their Social Security numbers printed on them. However, new legislation requires the Centers for Medicare and Medicaid Services to remove SSNs from Medicare cards. It’s a gradual change, so until April 2019, you might be stuck with your old card. If you have an old Medicare card with your SSN on it, remove it from your wallet and replace it with a photocopy of the card. You should black out your Social Security number on the photocopy.

Reference: Kiplinger (August 17, 2018) “The Worst Things to Keep in Your Wallet”

Watch Out for These New Estate Planning Scams

“Bad advice. High fees. Trust mills. There's a lot to watch out for when you're planning for the future, including several new estate planning scams.”

Death brings out the worst in people, and unscrupulous advisors prey on the elderly and their heirs with questionable legal advice, unnecessary bills and the ever-present living trust come-ons.

Wealth Advisor reports in the article “Beware Of These New Estate Planning Scams” that new estate planning scams focus on taking advantage of an elderly person who may have reduced capacity. Scammers want to get seniors to sign over their property or sign a power of attorney to control the elderly person's estate. The most vulnerable senior citizens are those who have no close relatives.

Talk to an experienced estate planning attorney who can raise issues with you, make suggestions and pinpoint potential issues.

Work with a trusted estate planning attorney and tell your family what to expect when you pass away. If you don’t, you could lose a lot of money to a predatory third-party.

Another one of the new estate planning scams is the trust mills. The National Consumer Law Center says that these scammers are dishonest salespeople who prey on seniors’ fears that after their deaths, their life savings and assets will be stolen. In addition, both the Federal Trade Commission and AARP have issued warnings about these hard-sell living trust promoters.

The con artists who promote living trusts to seniors don’t want to help anyone plan for the future. Instead, they're trying to get their “clients” to hand over lots of money for their extra-special living trust kit. That’s one signal that a so-called estate planner is up to no good—they're offering a one-size-fits-all estate plan solution.

Experts also say you should beware of terms such as "Pure," "Pure Equity" or "Constitutional" Trust. These can be even worse than the living trust scams.

Stay away from these new estate planning scams. Don't take shortcuts and don't wait. Seek the counsel of a state bar-admitted estate planning attorney. He or she will work with you to find the best solutions for your specific needs.

Reference: Wealth Advisor (August 6, 2018) “Beware Of These New Estate Planning Scams”

How Are You Doing with Your Medical Expense Planning?

“Medical expense planning is an important part of overall planning for retirement. While many elements of health insurance are based on the individual, it is important to evaluate and plan for these expenses as a couple because what happens to one person inevitably affects the couple as a whole.”

HealthView Services estimated it would cost a healthy 65-year-old couple more than $400,000 to pay healthcare premiums, plus deductibles and copays (and hearing, vision, and dental out-of-pocket costs) for their retirement in its 2017 Retirement Health Care Costs Data Report.

Even if your family is doing better than average in savings, deciding how you’ll handle health expenses in retirement is a critical task for any couple. Investopedia’s recent article, “A Couple's Guide to Healthcare Costs in Retirement,” provides us with several things you need to consider when planning a happy and healthy retirement for you and your spouse.

1. Have You Timed Retirement with Healthcare Costs? If your current health insurance is a family plan through your employer, retirement will affect your entire family. Consider all the options and select the ones that work best for everyone.

• Delay Retirement: You may want to undergo a “big ticket” medical procedure covered by your current insurance. Working longer will allow ton save more to cover your future healthcare costs. Your current plan may offer more than Medicare or Medicare Advantage plans.
• Move to Your Working Spouse's Plan: when you retire, move to your still-working spouse’s employer healthcare plan to delay applying for Medicare. If you don’t, you must apply during the seven-month period beginning three months before the month you turn 65 and ending three months after the end of the month you turn 65.
• Check with Medicare: if your spouse works for a small company (fewer than 20 employees), you still may have to apply for Medicare or pay a penalty.
• Examine Non-Medicare Coverage: if both you and your spouse plan to retire at the same time, and one is too young for Medicare, he or she will need individual coverage. If you have children under 26, who are still eligible to be covered under your insurance, remember that Medicare doesn’t provide family coverage.
• COBRA: you could purchase COBRA under a former employer’s plan for up to three years. However, it’s expensive, since you have to pay the full premium. You could also get coverage for your spouse or kids under the Affordable Care Act provided through the health insurance exchange in your state.

2. Budget Each Spouse’s Insurance Needs. Many people forget that their former employer paid for a large part of their previous health insurance premiums. In retirement, you’ll likely be paying the full amount. When you’re on Medicare, each family member will need individual insurance, because Medicare doesn’t offer family plans.

• Retiree Health Insurance: if you or your spouse will have access to retiree health insurance through your employer, see how much it costs, what it covers and how it works with Medicare before signing up. Most retiree plans aren’t employer-subsidized.
• Medicare Part A: most people qualify for Part A (hospitalization) at no cost, but if you do have to pay a premium, add it into your budget.

• Medicare Part B: most individuals pay a monthly premium for Part B (Medical) of $134 a month. If your combined income is more than $170,000, you’ll pay more.
• Medicare Part C: Medicare Advantage replaces Parts A, B, and often D. It’s private insurance, and prices vary based on coverage offered, which can include vision, hearing and dental. With Part C, you will pay a premium in addition to your Part B premium.
• Medigap: This supplements Part A and Part B, so you must also have A and B to have Medigap. These policies don’t offer prescription drug Part D coverage. If you buy Medigap during your six-month Medigap open enrollment period, you can buy any level of coverage you want without a health exam. It may be worth purchasing the best plan that each of you can afford.
• Medicare Part D: this is prescription drug coverage under Medicare. Premiums vary by provider. If the couple’s combined income is above $170,000, you’ll pay a surcharge.
• Long-Term Care Insurance: Medicare long-term care coverage is limited and doesn’t pay for long-term custodial care in a nursing home.

3. Retirement Savings Resources. You and your spouse should have individual retirement accounts, in addition to any property or investments you own jointly. Withdrawals from these accounts can see that you have enough to pay health-insurance premiums, co-pays and other healthcare expenses. You may want to consider these savings options:

• 401(k) Plans: if both you and your spouse work, you should take advantage of available workplace 401(k) plans and max out your plans each year. If company matching is available, make it as high as possible.
• IRAs (Roth or Traditional): if you meet the income requirements, open a Roth IRA for each of you. Qualified distributions are tax-free for both contributions and earnings with no required minimum distributions (RMDs). If your combined income is too high to invest in a Roth IRA, you can still invest in a traditional IRA.
• Spousal IRA: a working spouse can take out a spousal IRA in a non-working spouse’s name to effectively double the amount your family can invest in IRAs.
• Saver’s Credit: if you are a married couple with a joint income less than $61,500, you might qualify for a saver’s credit of between 10 and 50% of your IRA or 401(k) contributions up to $4,000. The amount you can take, is based on your adjusted gross income and is subtracted directly from what you owe the IRS.

4. Paying for Medical Expenses. Finally, decide how to pay for everything, including an allowance for inflation and unexpected medical expenses. Plan for these expenses with the right products, investments, and strategies, which may include:

• Investments: these may include mutual funds and stocks. While they have no guarantees, their potential growth can help offset the effects of inflation, and they have the potential to create capital growth for late-in-life healthcare costs.
• Health Savings Account: if you are in a high-deductible health plan at work, open an HSA and fund it while still working. This will give you funding for healthcare in retirement.
• Annuities: this can provide an income stream for medical expenses.
• Life Insurance: some policies can be used for medical expenses, such as combination policies with long-term care coverage and accelerated death benefit insurance. You can also use the cash value of a permanent life insurance policy to pay for care or expenses. However, if you do, it reduces the cash value and death benefit.
• Convert to a Roth IRA: If you have large RMDs from traditional IRA accounts, look at converting some or all of those funds to a Roth IRA before you turn 70.

Proper planning will put you and your spouse in a position to enjoy retirement, without worrying about that next big medical expense. Consult with an experienced elder law attorney to avoid issues and to make certain that your plan makes sense for both of you.

Reference: Investopedia (July 10, 2018) “A Couple's Guide to Healthcare Costs in Retirement”

How Can I Leave My Wealth to My Children and Not Create Problems for Them?

“More and more people are frustrated and confounded at the lack of appreciation they experience, when passing along their wealth to their children and grandchildren.”

A MarketWatch article, “How to leave an inheritance that doesn’t tear your family apart,” reports that in 2007, the Boston College Center on Wealth and Philanthropy started a four-year study to examine the hopes and struggles of wealthy people and how prosperity has shaped their lives.

Participants were asked about how their money helps or hinders their deepest aspirations for themselves and their children. The study found that participants with children worried less about making more money and impacting the world through philanthropy than “to be a good parent.”

Most parents don’t want to discuss money with their kids, and rightly so. It’s a daunting conversation, and can invite the question: “How much inheritance can I expect?”

However, when parents don’t communicate their hopes and dreams, the chances of a successful outcome aren’t great. The 20-year study at The Williams Group revealed the reasons why there is a 70% failure rate among affluent families, where family assets dissipate and family relationships disintegrate. The research found that it’s connected to a family’s ability to have meaningful, productive and honest discussions about the effect of money and the purpose of the wealth.

Some well-intentioned parents will respond to their children’s question of “how much and when?” by creating a structure that does the protecting for them. They establish trusts that distribute assets to their children at age-appropriate milestones. Or they add a term in their will that says, “if there is any fighting, it all goes to charity.”

Some parents try to leave their kids guessing. Mom and Dad think that if the kids don’t know there is some money coming to them, they’ll stay motivated and work as if they’re not going to get a thing. However, the pressure of children unsure of what they’ll inherit, starts to show up in awkward questions, like wondering if they can ask for financial support or if they’ll be cut off. The outcome may not be what the parents planned.

The best plan is to align the purpose and intended outcome of conversations about wealth and inheritance.

Reference: MarketWatch (February 21, 2018) “How to leave an inheritance that doesn’t tear your family apart”