One strategy to get your children prepared to handle the assets they’ll eventually inherit, is to have them meet with your professional advisors. They can explain what you’ve been doing.
FedWeek’s recent article entitled “Preparing Your Heirs for Their Inheritance” suggests that your children should meet with your accountant for an explanation of any tax planning tactics that you have been implementing. That way those tactics can be continued after your death. If you have a broker or a financial planner, your heirs should meet with this adviser for a review of your portfolio strategies.
Know that if you hold investment property, it might pose special problems.
While your investment portfolio can be split between your children, who can follow their individual inclinations, it’s tough to divide physical property. Your kids might disagree on how the property should be managed.
With any assets—but especially rental property—you have to be realistic. Ask yourself if your children can work together to manage the real estate.
If they cannot, you may be better off leaving your investment property to the one child who really can manage real estate and leave your other children non-real estate assets instead. You might also provide that some of your children can buy out the others at a price set by an independent appraisal.
Another way you can help is by proper handling of appreciated assets, such as stocks.
If you purchased $20,000 worth of XYZ Corp. shares many years ago, those shares are worth $50,000. If you sell those shares to raise $50,000 in cash for retirement spending, you’ll have a $30,000 long-term capital gain.
You might raise retirement cash, by selling other securities where there’s been little or no appreciation.
That will allow you to keep the shares and leave them to your children. At your death, your shares may be worth $50,000, and that value becomes the new basis (cost for tax purposes) in those shares. If your children sell them for $50,000, they won ‘t owe capital gains tax.
All of the appreciation in those shares during your lifetime will not be taxed.
Reference: FedWeek (March 31, 2021) “Preparing Your Heirs for Their Inheritance”
Think Advisor’s recent article entitled “11 Scariest Retirement Statistics: 2020” says that there is a lack of preparation, savings difficulty and general uncertainty that American retirees are facing. Here are those scary stats:
1. Just a quarter of Americans are on a trajectory to maintain their lifestyles in retirement. The other 75% will need to work longer, move to lower-cost housing and cut spending to maintain their standard of living, largely due to the coronavirus downturn.
2. The Social Security trust funds would be empty by 2023, without the payroll tax. While President Trump let employers temporarily defer the employee portion of payroll taxes, he said the deferred taxes could later be forgiven, or the cut made permanent. When he signed the order, he vowed to “terminate the tax,” if reelected. Republican lawmakers subsequently debuted a plan to fund any shortfalls from the Treasury.
3. Social Security benefits will be decreased by 21% if the trust fund runs out. Congress will have to intercede, or it could happen 10 years from now, if not sooner.
4. Those born in 1960 will have a big problem because of the complicated formula the Social Security Administration uses to calculate benefits. Pre-retirees born in 1960 will see a nearly 15% cut to their lifetime benefits from Social Security when it’s time to collect. If the pandemic suppresses the economy into 2022, those cuts will impact more pre-retirees. The impact to their Social Security benefits will also be permanent.
5. The 2021 Social Security cost of living adjustment, or COLA, will be just 1.3%. Retirees should note that rising health care costs and a potential 6% increase in Medicare Part B premiums may absorb that benefit increase.
6. More than 50% of Americans think the economy is worse now than in 2008, with 51% of Americans seeing the COVID slowdown as worse than the 2008 recession. A survey from Edelman Financial Engines also found that 26% had withdrawn money from retirement or savings for living expenses.
7. About 60% of retirement savers have fallen behind, according to a TIAA study. Among these, 30% said it was directly due to the pandemic.
8. Internet searches for “move out of the U.S.” have increased 16 times. International Living magazine says it had seen the jump in search traffic around the phrase since May. A total of 20% of respondents in a survey it conducted also said they wanted to move due to the pandemic. However, just 45% cited a desire to save money.
9. Approximately 42% of investors sold stock, and most of them (88%) of them regretted it. In response to the drop in stocks in mid-March last year, 42% of investors in a survey by MagnifyMoney sold at least one stock and 24% sold all their holdings. About 69% of those who sold stock at the start of the pandemic greatly regretted it, and 19% said they were somewhat regretful.
10. Roughly 80% of older Americans don’t understand retirement planning and don’t know the basics of how to successfully plan for a financially secure retirement, according to a study by The American College of Financial Services. The survey also found only 30% of respondents had a plan in place to fund long-term care needs, and just one in four actually had long-term care insurance.
11. About 3 million workers may have been driven into early retirement due to the pandemic. From March to August of 2020, 2.8 million older workers might have been pushed out of their jobs prematurely, with economic turmoil and poor health making it hard for them to resume their careers elsewhere, according to by the Schwartz Center for Economic Policy Analysis at the New School. The report found that 38% of unemployed older adults stopped looking for work and left the workforce, and an additional 1.1 million were expected to do likewise.
Reference: Think Advisor (Oct. 30, 2020) “11 Scariest Retirement Statistics: 2020”