Most financial advisors work with clients every day who are struggling to save money and prepare wisely for their future financial needs. This challenge of asset accumulation requires discipline and deliberate strategic planning.
Likewise, those clients who have entered the retirement years often need the counsel of their trusted advisors when it comes to how they choose to spend down their assets. Challenges such as sequence of return risk and other potential risk factors need to be mitigated.
What about the client who needs your help with neither accumulation nor spending, but actually giving away their assets? If you have a client who wants to share their financial resources with others, how can you advise them to do so in a manner that is fiscally prudent and emotionally sensitive to their family members?
(Related: Brace Your Baby Boomer Clients)
Naturally, estate planning attorneys are the most professionally qualified experts for more specific advice about how to give away assets. But, based on conversations with dozens of financial advisors and life insurance agents, here are five tips that might prove useful when working with a client who wants to give away some or all of their assets:
1. Set up a donor-advised fund.
Donor-advised funds (DAFs) are excellent vehicles for clients who have enough assets to benefit from the charitable deduction still available to them but perhaps not enough to warrant the establishment of a family foundation.
Your client can simply open a DAF with a non-profit sponsoring organization or a large investment firm, such as Fidelity or Vanguard, and fund the DAF with either cash or assets (e.g., stock, real estate, etc.).
The clients get an immediate tax deduction for any cash or appreciated stock put in the fund, then can take the time to direct their cash grants to the charities of their choice when they are ready.
2. Divide money to the kids equitably, not equally.
There is no legal or ethical obligation for your clients to give away assets to each of their children in equal amounts.
Sometimes, unique circumstances — such as a child with special needs or a child who received disproportionate support earlier in their lives — may cause a client to give different levels of money to their children, whether they are still alive or in their estate plan.
However, you have an opportunity to speak wisdom into your clients by pointing out to them that it’s important to be “equitable” about this unequal asset sharing, which means they should be fair to all children by spelling out their decision and the reasoning behind it with a clear letter and perhaps a video. This will reduce the risk of an ugly dispute within the family.
3. Create 529 plans for grandchildren.