How to Leave a Financial Legacy When You Aren’t Wealthy

08.16.2018 | Category: Financial Planning

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Regardless of age, there’s a lot to think about with retiring or leaving your loved ones with some financial peace of mind. You’ll see articles about how you should save $1 million for retirement. Some professionals say you should leave your children with a certain amount money. Others advise on how to catch up in retirement savings. While this is all worth considering, it can be hard to gather enough information.

Almost 57 percent of Baby Boomers think they won’t have any money left in their retirement accounts to pass on to their family.¹ So, what can you do? How can you pass on a financial legacy when you’re not Wall Street wealthy? You don’t need a lot of money to have a plan.

Buying Life Insurance

The main purpose of life insurance is to provide your loved ones with some financial protection in the event of your death. Life insurance can actually be an asset to use to help out your loved ones. These funds can be put toward:

Paying off taxes on your estate (your estate is a term for the belongings you leave behind)
Covering family debts, including “final expenses” (which usually means your medical and funeral costs)
Maintaining your family’s lifestyle
Supporting a child’s college tuition

Leaving Real Estate

Do you own your home? Does your family have a vacation home or hunting cabin? Although you may not know it, real estate is a great legacy to leave your loved ones!

Leaving Your Home
If you leave your home to your family, there are a few things they can do with it. They can live in it and create new family memories while cherishing the old. They can renovate your home and sell it. Or, they can rent it for extra income.

Leaving a Vacation Home
Do you have a family cabin on a lake? List your family as the owners in your will, and and they can use the home for family vacations. Or, they can sell it or rent it for extra income.

Leaving a Business

If you own a business, you can choose a loved one to take ownership in the event of your death. They can choose to continue the business or sell it. If you have business partners, let them know who you’re listing as the recipients of your share of the business. Your business partners may choose to buy your share of the business. However, that money can help your family decide if they want to keep their share or sell to your partners.

List a Loved One to Receive Your Retirement Money

So, you think you’re going to have some retirement money left over to give to your family. First of all, good for you! Second, how are you going to make sure it gets into the right hands? It can depend on the type of account you have.

Leaving a 401(k)
If you have have a 401(k) account, have you designated a loved one who will receive the money in that account in the event of your death? Most spouses can rollover the account, but if not, it becomes an inherited retirement account. There are different rules depending on how the account is transferred over. Check in with your employer’s human resources department if you’re not sure about how your account is structured.

Leaving an Individual Retirement Account (IRA)
If you have a traditional Individual Retirement Account (IRA), list a loved one that your account will be transferred to in the event of your death. Depending on your situation, the contributions you make to these types of accounts may be tax deductible now, meaning you would only pay taxes when you start to make withdrawals in retirement.

If you have a large family and can’t decide, you can have the funds in the IRA divided up equally for each of them. You can even designate a specific amount for each person to receive. You’re the best person to decide how to distribute your money. But, if you don’t want to distribute equally and are feeling unsure how to decide who gets the most, may we suggest:

A classic round of rock, paper, scissors
Whoever has sent you birthday cards every year
The person who laughs at all of your jokes
Talking to an advisor about how to divvy up the funds

Roth IRAs may be ideal to leave for your family, as these accounts are usually not taxed when you make withdrawals from them. Like traditional IRAs, you can list multiple loved ones to inherit the account. But, unlike a traditional IRA, you pay the taxes when you first make the contributions.

When inheriting a retirement account, certain taxes and rules may apply.² There are some exceptions to who you can choose to receive the funds. With all retirement accounts, children are usually not allowed to receive funds until they turn 18 or 21 (depending on the state).³ You can set up a trust to help, but definitely talk to a tax professional who can make sure your trust is set up correctly.

Evaluate Your Personal Possessions

Family heirlooms are priceless –  no doubt. But, wouldn’t it be nice to know the value of your emerald ring before it’s passed down to your granddaughter?

Depending on your situation, you might want to get your personal assets assessed. You may love your antique chestnut dresser, but what if your children decide to sell it when you pass? How can you ensure that it’s valued correctly?

Check in with your spouse about their will, too. Make sure you’re both on the same page about who’s listed on your wills to receive your shared belongings. If you have kids together, now’s the chance to legally decide who’s the favorite. Are you both listing the same child to receive your vintage china? Being clear about your wishes can prevent hard decisions and family disagreements later.

If you don’t have kids, talk with your spouse about other cherished people in your life or a favorite charity that you’d want to take ownership of your most beloved possessions.

Setting Up a Will

What is a will, anyway? A will is the legal document that you set up with a lawyer that explains how your belongings should be distributed in the event of your death.

What if you haven’t set up a will yet? That’s okay! Here are a couple of resources you can use to get started:

It’s always a good idea to speak to a tax/legal professional if you have questions. This way, you’ll rest in peace knowing your personal possessions are with the right person.

Teaching Your Grandchildren Healthy Financial Habits

Leaving behind a financial legacy doesn’t have to be only about physical money. Take some time to instill your good money habits to your grandkids. This can help them understand the value behind money and how to make the most of theirs.

How will your grandkids understand student loans in college, when they don’t learn to save their weekly $10 allowance when they’re younger? What are ways they can build good credit before they get to college? You can share your knowledge with your grandchildren, so they know what to expect when they’re out on their own.

If you’re still unsure about how to leave your loved ones with some financial peace of mind, try these financial resources and tips.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc. Member FINRA/SIPC.  Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.

Sources:

1 Natixis (2017, June 6). Web page: Americans Are Counting on Family to Fill Retirement Savings Shortfall but Forget Uncle Sam, Finds Natixis Survey. Retrieved on May 31, 2018 from https://www.im.natixis.com/us/resources/2017-global-individual-investor-survey-press-release.

2 Retirement Topics Beneficiary. (n.d.). Retrieved June 20, 2018, from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary.

3 Sheedy, R. L. (2017, May 24). Pass an IRA to Young Grandkids With Care. Retrieved June 20, 2018, from https://www.kiplinger.com/article/retirement/T021-C000-S004-pass-an-ira-to-young-grandkids-with-care.html.

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