Have you ever wondered:
Am I saving enough to meet my retirement objectives?
Will I have the retirement I'd hoped for?
Will my children have the financial opportunity to continue their education?
Is my estate plan consistent with my current goals?
Done correctly, personal financial planning helps discover and prioritize your objectives while planning and protecting the future of those closest to you. Now more than ever, doing it right requires the services of a sophisticated professional team.
Whether sporting a lakefront view or nestled in a mountainside perch, your vacation home is a place where special moments happen and important memories are made – a place where your family comes together. But, if you’re not careful, the gift of a vacation home can be a source of conflict for those who inherit it, even spurring battles between family members. One of the best ways to avoid family discord is to plan, and plan early.
Your advisor can help you answer these questions and guide you through the process, raising concerns you may not have considered and discussing available strategies to establish a plan that satisfies each person involved.
1. Outright Transfers
The simplest way to pass your vacation home on is to leave it outright in your will to specific children or family members. While this is the simplest option for you, however, it may lead to headaches and conflict for your loved ones. The added complexities that come with an outright transfer often spark disagreements and resentment between those who receive the property.
Equal ownership means all owners have an equal responsibility to pay for associated costs, and each has a say in decisions concerning the home.
2. Establish a Family Limited Liability Company
An LLC can offer tax advantages while providing you with greater control over the property, even after shares are given to your children. You serve as the manager of the LLC, enabling you to pass ownership of the home to the LLC itself, and then transfer shares to individual family members. Those included in the LLC create a detailed operating agreement specifying who has access to the home and when, as well as who’s responsible for taxes, upkeep and other expenses.
3. Gift to Qualified Personal Residence Trust (QPRT)
QPRTs allow you to transfer your property and continue to live there for a specified number of years, while avoiding federal estate taxes and mitigating federal gift taxes. You continue to pay the carrying costs of the home, including real estate taxes. At the end of the term, the property passes outright to those named as your remainder beneficiaries with no estate tax.
4. Fund a Grantor Trust
This irrevocable trust owns the assets held by it for transfer tax and state law purposes, but the assets are treated as owned by you, the individual grantor, for income tax purposes. No loss or gain is recognized during the sale of an asset by a grantor to a grantor trust. The trust structure also can provide rules regarding sharing use and expenses among your loved ones.
It’s more than possible to incorporate your vacation home into your estate plan in a way that works for everyone. Your advisor and tax professional can help as you decide what to do with a home that has long served as a place of connection and communion for you and the ones you love. Be sure to discuss your particular family dynamics, beneficiary circumstances, anticipated operating costs, intended use and liabilities, desire to keep tangibles and furnishings on the property, and the tax consequences for individual beneficiaries.
Advances in medicine and technology have increased Americans’ longevity and quality of life, though the latter doesn’t happen by accident. Along with your financial advisor, estate attorney and accountant, there are specialists who can help you or a loved one live a fulfilling life throughout retirement. While many come at a cost, their experience can guide your decisions and perhaps save you money and time in the long run.
Here are some professionals who stand at the ready, if and when you or a loved one should need them.
Healthcare advocates help navigate public and private medical resources and evaluate in-home and long-term care options.
Senior move managers assist with de-cluttering, organizing and lending perspective during a move. They also can arrange to sell or donate unwanted items, supervise movers and set up your new home.
These attorneys help older Americans prepare important documents, review estate plans and update beneficiary designations. Other services include long-term care planning, resolving Social Security issues, fighting age discrimination, establishing conservatorship and litigating elder abuse cases.
Those certified by the National Association of Home Builders design, modify and build safer living spaces for those who want to live independently.
Professional fiduciaries provide critical assessments and planning for seniors and their families facing medical, psychological, housing, social, legal and/or financial obstacles.
Driver rehabilitation specialists are trained to help drivers who are experiencing difficulties and can recommend mobility equipment that would keep you or a loved one safely on the road for longer.
These experts assist with locating local VA medical hospitals or outpatient facilities; applying for federal benefits and employment assistance; accessing specialized programs designed for military members; and applying for burial and survivors’ benefits.
These professionals connect caregivers with the right services through agencies dedicated to aging, housing, social activities, Medicare and other health services. They often develop and maintain a care plan that evolves as needs change.
In-home health professionals provide many of the same services you’d find in a hospital or care facility. Look for a compassionate professional whose training meets your state Department of Health’s guidelines.
Sources: Barron’s; longtermcarelink.com; transamerica.com; MIT AgeLab
Published college costs can be intimidating, even to dedicated savers. Harvey Mudd College heads the total cost list at $69,717, while Columbia University charges the most for tuition alone: $55,161. Few students pay these totals. Scholarships and financial aid can cover some expenses, and state universities and colleges cost much less. Nevertheless, 61% of undergraduates leave school with debt – an average of $28,100.
You might expect parents and grandparents would be saving large amounts in tax-advantaged college savings programs. However, Sallie Mae, the nation’s largest college student loan company, found that although 57% of parents are saving to fund a college education, only 37% do so in a tax-advantaged way.
If you intend to help pave someone’s path to higher learning, you have several choices.
Generous contribution limits and potential for tax-free qualified withdrawals make a 529 plan the choice for many families. A benefactor can gift up to five years of gift tax exclusions for a $70,000 one-time contribution ($140,000 for a joint contribution). States also may offer tax breaks on plan contributions.
This tax-advantaged account’s main drawback is its modest contribution limit – $2,000 per year. If your modified adjusted gross income is less than $110,000, you can use contributions to cover qualified higher education expenses or even elementary and secondary education expenses, a key difference from other education accounts. Contributions grow tax-free and qualified withdrawals are free of tax at the federal level and often at the state level. Any funds left in a Coverdell ESA must be distributed to the beneficiary when he or she reaches age 30, unless that person has special needs.
You also can make a contribution under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act. The “gift to the minor” is irrevocable, and the assets become the property of the child once he or she reaches the age of majority (usually 18 or 21). Also, the child’s assets could work against financial aid calculations.
Other savings avenues are possible. If you qualify, you could open a Roth IRA (2017 contribution limit: $5,500; $6,500 if you’re 50 or older) with the idea of using some of your contributions (not your gains). You can extract your after-tax contributions at any time, for any purpose, while leaving your gains to grow tax-free to support your retirement. Or consider tax-efficient investments; your withdrawals won’t be tax-free, but they can be used for any purpose without any penalties to consider.
Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer’s official statement and should be read carefully before investing. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan. Plans offered outside your resident state may not provide the same tax benefits as those offered within your state.
Sources: Chronicle of Higher Education, 2016; The College Board, 2016; “How America Saves for College 2016,” SLM Corporation
Material prepared by Raymond James for use by its advisors. Raymond James is not affiliated with any companies mentioned in this material.