Strategies to increase the value of a financial legacy

Rich M. Groff II

Special to Village News

After a lifetime of accumulating money, it’s common for retirees to start thinking about their legacy and what they want to leave to their children, grandchildren or a favorite charitable cause.

But despite the dollar signs they see on investment and bank accounts, there’s no guarantee loved ones or a chosen charity will get the full amount.

Uncle Sam is lurking to snatch a sizable share.

It’s important to plan carefully to make sure that as much of the money as possible goes to the people or organizations chosen. It’s very easy for someone to think they’ve covered all the bases, when in reality there are potential pitfalls they didn’t know about or didn’t count on. The good news is that there are plenty of options people can consider that will allow them to leverage those gifts, so that the person or organization receiving them gets the maximum amount possible.

Here are just a few of those options.

First, leverage an individual retirement account to increase a legacy.

When leaving a traditional individual retirement account to loved ones, remember that they pay a hefty tax on it. But there are ways to eliminate – or at least mitigate – the tax bill. For example, use some of the individual retirement account money to buy a survivorship universal life insurance policy that would pay enough to your beneficiaries to offset the amount of the taxes. There are additional ways of using an SUL to eliminate the taxes, give to charity and still increase what loved ones receive.

Make a charity the life-insurance beneficiary.

People usually think of naming a spouse or a child as the beneficiary on a life insurance policy, but the money doesn’t have to go to an individual. Policy holders can direct that the policy be paid to a charity instead. The main downside to this approach is that there’s no income-tax advantage for the policy holder.

Last, consider donating the life insurance policy. This strategy does come with some tax advantages. Giving a life insurance policy to a charity as a gift can provide an income tax deduction now and can significantly reduce the taxable estate of the person who made the donation when that person dies. The charity, meanwhile, receives the full face value of the policy.

Many people have a good idea who they want to benefit from their financial legacy. They just don’t always know how to make it happen. But if they lay out all their wishes to their financial professional, that person should be able to help them come up with a plan that will meet their legacy goals.