By Vincent A. Schiavi
If you are like most people, you place the health of your family ahead of almost all other concerns. Wanting financial security for your family is a natural extension of this desire. Your first obligation, like the parent in an airplane directed to put the oxygen mask on first, is to get your own financial house in order before assisting others. Let’s assume that you, with the help of a competent adviser, already have your financial house in order and wish to play a part in helping your adult children.
One way to help your adult children is first to assess your own needs, including health care needs, and create an adequate cushion for expenses you may incur in the future. For many parents, knowing they will not be a financial burden to their children is enough of a gift. In fact, if you are able to say with confidence that you will not be a burden, you are probably in the minority. If, however, you have been blessed with more financial resources than you know you will need in your lifetime, then you have choices. You could do nothing and let your children’s efforts finance a lifestyle they can afford, or you could help them in any number of ways. Examples include assisting a family member with the down payment of a home, financing some or all of a grandchild’s education, paying for orthodontia care (braces) or a grand family vacation.
We have seen clients struggle with decisions around helping adult children. How much can they afford to help? Is it all right to treat one child differently from another? If they do treat children differently during their lifetime, should they even things out in their estate distribution? How should children inherit the assets? Should it be outright with no strings attached, or in trust to protect against future creditors, including divorce property distributions? Would their children benefit from professional financial management? If so, such a plan can be put in place now.
If you are blessed with a long and healthy life, your children may not inherit your assets until their own retirement years. For some children, this may be too late for an inheritance to impact their lives for the better. If you decide to provide assistance during your lifetime, should it be with a gift or a loan? If a gift, should it be of cash or securities? If securities, which ones? If it’s a loan, how should it be structured? Should it be unsecured or secured? Should it be forgiven at your death, or retained in your estate to even out bequests to other children?
A financial advisory firm that actually performs coordinated financial planning, as opposed to just money management, is in the best position to explore family financial planning opportunities that are both tax-efficient and effective. How do you find a financial adviser that actually provides this type of planning? One place to start is with the National Association of
Personal Financial Advisors at www.napfa.org, firstname.lastname@example.org, or 888-333-6659. Their members have a fiduciary obligation to serve your interests and must offer financial planning.
Unfortunately, not all members of NAPFA have the same commitment to planning. Ask potential advisers what percentage of their clients actually receive coordinated financial planning. If most of their clients don’t get planning, continue your search.
Too many families neglect multigenerational planning. If done properly, that planning could enhance the lives of your loved ones. In return, you will receive the benefit of knowing you did what you could with what you had. Only you can measure how much that satisfaction is worth. ♦
Vincent A. Schiavi, CFP, CPA, PFS, is the founder and president of Schiavi + Dattani, Delaware’s first fee-only financial planning firm.