If you enjoy supporting your grandchildren financially – or if this is one of your goals – you’re not alone. Eighty-four percent of seniors say that creating a financially secure life for themselves and their family is an important goal.1
Yet, deciding how to best help your grandchildren can be a struggle, especially if you share some of the same financial concerns as your peers. For example, you may be among the 27 percent of seniors who say changes to Social Security are most likely to jeopardize your retirement plans or the 23 percent who identify healthcare costs as the biggest threat.
When evaluating how much financial support to provide, consider the following:
- Give only what you can afford. Your own financial security should be your first priority. Since there is no way to know with any certainty how long you’ll live, how the market will perform or how inflation may impact your purchasing power, make sure that you gift within your means. Doing so will help ensure your generosity today doesn’t create a financial hardship for you — or your family members — down the road.
- Give equally. To help prevent family conflict and avoid damaging relationships, give equally to your grandchildren to the best of your ability. If you need to give more to help one of them through a rough patch, consider adjusting your will to even things out and clearly communicate your intentions to everyone involved.
- Clarify whether you’re making a loan or giving a gift. If you’re giving a gift, familiarize yourself with federal tax rules, which are based on the calendar year. For example, in 2012 you can give up to $13,000 to each of your children and grandchildren before the federal gift tax is applied. Also, be sure the recipient knows it’s a gift to alleviate any uncertainty about whether they’re required to pay you back.
If you are loaning money to a grandchild, be very specific about the terms and repayment, and make sure you have a written document that both parties sign and date. This will help safeguard your financial situation. This will help safeguard your financial situation and ensure both of you are on the same page – now and in the future.
- Discuss your intentions. Only 61 percent of seniors say they regularly discuss money and finances with their family. If you would like to help support your grandchildren or save for their future goals like college or a down payment on a home, be sure to communicate this with their parents. This can help your adult children do a better job with their own financial planning. For example, if the parents of your grandchild know how much you are expecting to contribute to their child’s education, they may be able to decrease the amount allocated to a 529 Plan and investment more toward other goals, such as their own retirement.
- Set appropriate boundaries. Even if you want to help your grandchildren financially, depending on their age, it may not be appropriate to do so. For example, many young parents take pride in their financial independence. The experience of letting them live within their own means can be an excellent teaching opportunity. Keep in mind the smart — and sometimes tough — financial lessons you learned as you made your own way as a new parent, and the pride that came with successfully overcoming challenges.
If you want to provide financial support to a family member, but haven’t incorporated it into your overall financial plan, consider consulting a financial professional. He or she can help you evaluate your financial needs and goals and create a strategy. A clear and realistic understanding of your own financial picture can help you identify how much you can comfortably give, as well as the most tax-efficient and effective way to go about it.
1 The Money Across Generations IISM study was commissioned by Ameriprise Financial, Inc. and conducted by telephone by GfK in December 2011 among 1,006 affluent baby boomers (those with $100,000 or more in investable assets); 300 parents of baby boomers; and 300 children of baby boomers at least 18 years old. The margin of error is +/- three percentage points for the affluent boomers segment and +/- six percentage points for the parents and children of boomers segments.
Gregory Younger, CRPC is a Financial Advisor with Ameriprise Financial Services, Inc. in St. Peters, Missouri. He specializes in fee-based financial planning and asset management strategies and has been in practice for 11 years. To contact him, http://www.ameripriseadvisors.com/gregory.d.younger/ or 300 First Executive Avenue, Ste. D, St. Peters, MO 63376; (w) 636-405-5004, (c) 636-233-2099.
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