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Financial Planning > Tax Planning

Gift of love: A story of mom

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May means Mother’s Day, and in our family, it also marks the birthdays of both my mother and me. This week, I received a birthday present from my mom, made extra special because she passed away 10 years ago. As such, I am inspired to share with you the wonderful financial planning story that created my annual present from my mother.

My mom and dad never made much money. But no matter how small the paycheck, they always managed to make saving and investing a priority. An even greater priority for them was educating my sister and me. It was always expected that we would go to college and maybe even graduate school. So it came as no surprise that as a result of such education, their children are now in much higher tax brackets than they were.

Through consistent saving and good investments, my mom built up a very nice IRA. When she was diagnosed with multiple myeloma, she decided it was important to leave something directly to my sister and me. I worked with her on a strategic plan to do so.

Being a beneficiary
First, she converted her traditional IRA into a Roth IRA. She knew paying the taxes in a low tax bracket was a tremendous gift in itself. She spread the conversion and tax costs over four years to minimize the taxes. Then she made my sister and me beneficiaries of the Roth IRA. At her death, my sister and I each had the choice of accepting all the money income tax-free then, or keeping the wonderful tax-free Roth and receiving minimum distributions over each of our lifetimes. We both opted to keep her Roth as a beneficiary designation account and receive distributions each year that will likely continue for our entire lives.

My sister chose to receive her annual gift/distribution on her birthday. I chose to receive mine on my mom’s birthday. This year the check was for $3,500. Every year since she passed away, I have received a check. And every year both the check amount and the remaining account have grown larger. Her legacy gift to me each year feels like she is still sending me her love.

There are many ways to customize this type of gift. You may choose to use a low tax bracket or leave gifts for grandchildren. You can even provide flexibility by naming a spouse as primary beneficiary and the children as contingent beneficiaries, giving the spouse the choice of keeping the money or disclaiming. This would allow the children to do what my sister and I did.

This same technique can be used to give money to grandchildren and keep the memory of the grandparent alive. But I think the real opportunity is for the beneficiary to make the gift special. Suggest they pick an annual distribution date that is meaningful to both the giver and receiver. This could be an anniversary of something special, a birthday or much-loved holiday.

Today I am thinking about my mom. Her planning wasn’t about numbers. Her planning was a lasting gift of love.


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