Balancing your lifetime needs and your legacy goals starts with a step-by-step plan.
To an outside observer, the couple in their 60s might have appeared to have no financial worries at all. Both were educated professionals with good incomes, and between them they had inherited several million dollars in trust.
Yet doubts crept in, sometimes keeping them up at night. They wanted to pass down much of their inheritance as a legacy to their children and grandchildren and were deeply committed to supporting charities. But what if their generosity left them with less than they needed for their own future? Would they be able to cover major health expenses as they aged? How might a downturn in the financial markets affect their goals?
For all of its advantages, wealth offers little immunity from such concerns. “If anything, people’s concerns are growing, because we’re living longer, and getting older is more expensive than it used to be,” says Dan Griffith, senior vice president and director of wealth strategy at Huntington Private Bank®. Even for those with substantial resources, he adds, it’s often the unknown that drives the fears†.
Will our retirement income cover our spending?
For this couple, the path to peace of mind started by working with their Huntington Private Bank advisors to gain a clearer picture of their personal expenses. “We took a step-by-step look at the total amount they were spending each month and how those needs might change in retirement,” Griffith says.
The team matched that spending picture against a detailed analysis of the couple’s projected post-work income from all sources, including retirement accounts, Social Security, cash, and investments, as well as the taxes they’d owe. They were not leading a lavish lifestyle, but seeing the hard numbers gave them reassurance, he adds.
“Next, we looked at a variety of worst-case scenarios,” Griffith says. For example, how would an illness requiring around-the-clock care affect their savings? Even then, they would have ample resources, the analysis showed.
Could our investments withstand a setback?
With memories of the Great Recession still fresh in their minds, the couple also worried whether a downturn could jeopardize their goals. The team conducted a thorough analysis of their entire investment portfolio, showing how various market conditions might affect their assets. The couple’s asset allocation—a balanced mixture of stocks, bonds, and other investments—is likely to withstand even a serious setback, the analysis showed. Yet because the couple didn’t require significant growth in their portfolio, they could gain additional peace of mind by shifting some of their stock holdings to lower-risk, income-producing bonds, the team explained. “I think that both of them felt a lot better having discussed this option,” Griffith says.
How can we transfer money in a tax-efficient way?
With a clear picture of their spending needs, income, and investments, the couple turned next to one of their most important goals—leaving a sizable legacy for their heirs. Their advisors conducted a detailed forecast of the potential size of their estate, revealing a possible risk.
Although they were unlikely to surpass the lifetime gift and estate tax exemption currently provided for under federal law ($11.7 million for an individual, or $23.4 million for a couple for 2021)‡, if lawmakers lower the exemption before the couple dies, taxes could consume a sizable portion of the money they intended for family.
As a possible solution, the team suggested the couple consider setting up an irrevocable trust. By putting the money in a trust now, they could move substantial assets out of their federally taxable estate using the currently high lifetime gift tax exemption, Griffith says§.
Will our legacy be protected?
But how could they be sure the legacy would be protected from reckless spending or from creditors? The couple’s advisors described how trusts can be created so that wealth passes seamlessly from one generation to the next—but with the flexibility to meet heirs’ educational or other needs along the way, Griffith adds. Moreover, a trust can help provide protection from creditors, should an heir run into difficulties§.
How can we give more to charity?
Finally, the couple looked at various ways of structuring their philanthropy to maximize the impact their gifts might have while minimizing taxes. For example, setting up a donor-advised fund could enable them to make a large tax-deductible donation up front, and then make gifts to individual charities over the ensuing years.
The couple’s plans, like life itself, are still a work in progress. “But I think that both of them felt a lot better knowing they have good options,” Griffith says. “They didn’t feel alone in facing these questions. They have a team, with resources, to help them make educated decisions.”
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