FINANCIAL PLANNING THROUGH THE GENERATIONS

Neal A. Deutsch, CFP^®

Published in Rivertown Journal, August 2010

I spent the July 4th holiday in my home in Tennessee, surrounded by my Southern friends and more BBQ and ribs that you could eat! Each time I go "home" it gives me the opportunity to catch up on my neighbors and friends, see what the kids in the neighborhood are up to, and reacquaint myself with those that have become very near and dear to Elizabeth and I.

Evenings are much quieter than here, up North. The gathering place is usually my next door neighbor's front or back porch, and you never know who's going to wander in and "set" for awhile, talking about the weather, the neighborhood, family, health and that all encompassing subject: money. The neighborhood is varied in age, from mid 30's to 70's, and the subject of money runs from the cost of goods, college, retirement and everywhere in between. For those on the upper end of the age spectrum, planning for the continued care of one's spouse and what will happen to their wealth upon their passing is a subject lightly touched upon but ever present.

Intergenerational planning is the act of designing a financial and estate plan to determine how and why your wealth will pass to the next generation(s) in a smooth and precise manner. If you are married or have a partner, chances are that your primary goal will be to protect and support your spouse or partner until their death- and this is where the intergenerational part of the plan comes in. What would you like your wealth to do or accomplish after you are gone and your partner is no longer in need of the principal or income?

In larger estates, the effects of skipping a generation can be very substantial. Each owner has an exemption of $3,500,000 in today's tax laws. Two ways to remove up to this sum may be a gift to your child or a gift to your grandchild. The gift will effectively remove the lump sum from your estate for estate taxation purposes along with any further growth that may occur in your estate, further compounding your estate tax issues. With the estate tax tables starting at 37% and rising to over 55%, the reduction of your estate upon your death may be substantial. Another strategy may be gifting a lump sum to your grandchildren, and depending on your health, have them pay premium of a new life insurance policy on your life in the amount of the gift, thus leveraging the gift and growing the amount you leave to the next generation while not in your taxable estate.

Trusts may be utilized in various ways to reduce your estate while preserving the integrity of your wealth. If you choose to make an irrevocable transfer into a trust, it must be done more than 5 years from the date of gift to your death to be clear from inclusion in your estate. Terms of the trust may include support for you spouse or charities, or a complete removal of your wealth for a later planned benefit to your children, charity or other beneficiary. A structured gift to a trust may provide a means of income for generations to come as well as creating a legacy for the grantor. The terms of the trust are determined by you, the grantor, and may be as creative as you like as long as it is legal and within the confines of the present tax laws.

If you are of the feeling that your estate or wealth is too small to consider intergenerational estate planning, think again. Every dollar that you worked hard to accumulate is a dollar that you can plan and determine where and who will benefit from it when you are gone. Think about how you might benefit a charity, or how your children or grandchildren may find life just a bit easier with your help, and how they will thank you and remember you long after you are gone. Speak with your Certified Financial Planner™ or give us a call and we'll fill you in on how your hard work can benefit generations to come.

If hearing from me once a month isn’t enough, come visit me in our new blog site at www.chestnutblog.com.  If you think I’ve got pearls of wisdom here…you ain’t read nothin’ yet! See you there!

Neal A. Deutsch is a Certified Financial Planner^™  & Registered Securities Principal, offering securities through First Allied Securities, Inc., member FINRA/SIPC.  Neal is President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com. Visit his website at www.chestnutinvestment.com