5 Tips for Advising Clients Who Want to Give Away Assets

A great way for your clients to give away assets is to set aside money that can be used to help pay college tuition bills for their grandchildren (or great-grandchildren).

With a 529 Plan, the money your client deposits will grow tax-free and can be withdrawn tax-free for educational expenses when the grandkids are ready to go to college. In fact, the new tax law enacted in 2018 allows for tax-free withdrawals of up to $10,000 annually to pay for K-12 education expenses as well.

For clients who wish to go this route, they can either create a 529 plan in the name of the grandchild or they can establish the account in the name of the child’s parent. It may be advantageous to use the latter approach as financial aid formulas will treat income from a grandparent’s 529 plan as student income, but not if it is held in a parent’s name.

4. Determine whether to keep or sell a life insurance policy

Many of your clients own a life insurance policy that has been sitting in a drawer for years, without. realizing that a life insurance policy is private property that has value, just like a house or a car. Meanwhile, many carriers have quietly raised the premiums on policy holders with significant increases to the cost of insurance.

If you have a client who no longer needs or can afford the premiums on their life insurance policy, they may want to think about whether it makes sense to keep it or liquidate that asset now and give away the proceeds while they are alive. Any qualified life settlement professional will be happy to review your client’s policy and provide you with a preliminary idea of whether your client might be able to sell the asset for an immediate cash payment. Please visit www.LISA.org to identify licensed life settlement providers and brokers who may be able to assist your client.

5. Get charitable with an IRA.

IRAs are one of the great tools in a financial advisor’s arsenal as they create a vehicle for your clients to save pre-tax money and invest it for decades on a completely tax-deferred basis.

When it comes time to start withdrawing that money in the retirement years, it’s important to be deliberate about those withdrawals in order to minimize the tax impact on the client since a higher tax bracket means higher Social Security benefit taxes and higher Medicare premiums.

One way for your clients to achieve their goals of giving assets away and do so in a way that creates a tax benefit is to donate money directly from their IRAs. If your client is 70 ½ or older, they can transfer up to $100,000 per year to a public charity they wish to support and that donation is completely excluded from income tax calculations.

With this “qualified charitable distribution” strategy, every dollar your client gives away counts against their required minimum distribution for the year, making it a win for the charity’s budget, the client’s conscience and the estate’s bottom line.

The client who needs your advice for how to give away assets is a good kind of a challenge for financial advisors — but a challenge all the same. By bringing to them these five simple ideas, you can help them achieve a truly honorable goal of sharing their financial resources with others in a fiscally responsible manner.

— Read Helping Your Clients Afford a More Expensive Retirement, on ThinkAdvisor.

Darwin M. Bayston, CFA, is the president and CEO of the Life Insurance Settlement Association (LISA).