What If

The financial services industry is often focused on helping people to both get more and keep more. Our mission is aligned with helping people achieve their dreams. We also help people prove their love by providing for, and protecting, their families.

What if we all improved our ability to help people prove their love by giving more?

Amy Carmichael was born in Ireland in 1867. She served as a missionary to India where she rescued young girls and women from temple prostitution (which was basically a form of sex-trafficking). She gave her life to save the lives of others.

Carmichael wrote a book about love entitled “If.”1 Here is a quote from that book:
“You can give without loving, but you cannot love without giving.”

A good starting point for our industry is helping grandparents prove their love for their grandchildren by making wise and appropriate gifts.

My wife and I had a marvelous October 2021! We welcomed two new grandchildren into the world! Daniel was born on October 10 and Wendy was born on October 31. They bring our total number of living grandchildren to 6! (Sadly, we lost one.)

Like many of our similarly aged friends, we adore our grandchildren! Recently, we have been pondering the best ways to demonstrate this love.

Perhaps the most straightforward way to demonstrate our love is to give each grandchild an outright gift of money. We could individually gift each grandchild up to $15,000 in 2021 without having to file a gift tax return. Since we are married, we could both make cash gifts to all six grandchildren ($180,000) with no gift tax implications! (Okay, we love them, but let’s not go crazy!)

We would want their parents to set this money aside on behalf of our grandchildren for future educational expenses, medical costs, or a down-payment on their first car or house. But there is no guarantee that our wishes will be respected.

Thankfully, there are multiple other strategies we can employ:

  • Contribute to a 529 college savings plan.
  • Give money from a donor-advised fund.
  • Set up Uniform Transfer to Minor Act (UTMA) accounts.
  • Establish a Delaware dynasty trust.
  • Buy some shares of stock that can grow over the long term.
  • Name them as beneficiaries in our will or trust.
  • Make contributions to Individual Retirement Accounts (IRAs).
  • Purchase an individual permanent life insurance policy on each child.

529 Plan
If we want to designate our gift for post-secondary education, a 529 account is a great tax-advantaged way to do it. We just need to be careful in choosing who owns the account because that will affect who can make decisions on the account, take disbursements, or change the beneficiary.

Donor-Advised Fund
Many brokerage firms and banks offer donor-advised funds. We could use these funds to teach our grandchildren about philanthropy and establish the means of giving them a share of the money to designate to charities of their choice. We simply need to notify the institution of the money within the fund that our grandchildren can grant to the charity of their choice.

UTMA Account
We can open UTMA accounts in the name of a grandchild, but an adult (their parents) will keep control of the account until the child reaches age 18-21 (depending on what state they’re living in). The money in these accounts could be used on anything the grandchild needs.

Delaware Dynasty Trust
A Delaware dynasty trust can allow us to financially benefit multiple generations! We could fund the trust with an amount up to the maximum available generation-skipping transfer (GST) tax exemption. The trust assets can pass from generation to generation, free of estate or GST tax.

Shares of Stock
We can buy our grandchildren some shares of stock that can grow over the long term. Of course, the downside of giving shares of stock in some companies is the risk that the company may not thrive over the long term. As an alternative, we could buy shares in exchange-traded funds or mutual funds. In this way we could teach them valuable lessons about investing.

Named Beneficiaries
By naming our grandchildren as beneficiaries in our will or trust we (as the grantors or trustors) are able to specify a set amount of money or a percentage of our total accounts as we desire each child to have. However, if our grandchildren are minors at the time of our deaths, the trustee or executor of our estate will face the responsibility of creating safeguards before the inheritance can be distributed.

Individual Retirement Account
Once the grandchildren are working, we can contribute to IRAs for each child. This includes both traditional and Roth IRAs. Each year we can contribute as much as they earn. In 2021, up to $6,000.

Life Insurance
If we bought a cash value life insurance policy on each child these policies could provide minimum financial protection now. In addition, the policy can be structured to give the child options in the future to purchase additional amounts without underwriting when there’s a greater need for additional coverage. These policies will build cash value that our grandchildren could access for any reason.

Question: As an independent financial professional, are you guiding your clients who are grandparents in these various approaches to gifting?

No Good Deed Goes Unpunished
Before recommending any of these ideas to grandparents, we will do well to remember several things:

  • Remember that any gift can interfere with Medicaid eligibility. “Under federal Medicaid law, if you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on how much money you transferred. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $15,000 per year (in 2021) without having to pay a gift tax, Medicaid law still treats that gift as a transfer.”2
  • Keep in mind that today’s tax-free transfer amount is set to expire after 2025. That means it is possible that the amount your clients who are grandparents can transfer free of estate tax to their grandchildren may be lower in the future.
  • There is a downside for grandparents gifting assets during their lifetime to their grandchildren. Under 2021 tax law, stocks and other assets that appreciate in value will not receive a “step-up” income tax basis. This means that grandchildren who receive gifts of appreciated property or securities will be subject to capital gains tax on the built-in appreciation when they sell the assets.
  • Wise grandparents will ask their children for permission before they make large or numerous gifts for their grandchildren. Parents can feel disappointed and embarrassed rather than joyful whenever they feel a sizable gift from the grandparents eclipses anything they themselves can give their own children. Grandparents should always honor the parents by giving a gift they approve of.
  • While grandparents may desire to leave their grandchildren with an awesome inheritance, giving large sums of money or assets may not be appreciated by the parents. Some parents may see such large inheritances as a hindrance to their child’s character development.

Like everything else within the realm of financial services, there is greater complexity than the general public can comprehend. Even when it comes to simply wanting to demonstrate love through giving, there are good, better, and best ideas, and there are also bad, worse, and potentially disastrous consequences.

What if we as independent financial professionals elevated our own skills in the art and science of gifting? We would then be in better shape for coaching our grandparent clients!

Then we, too, could show our love by giving (sound advice).

1. “If”, by Amy Carmichael, 1965, Zondervan, Grand Rapids, Mich.
2. https://www.elderlawanswers.com/how-gifts-can-affect-medicaid-eligibility-10006.

CLU, ChFC, FLMI, is a director, vice president, team leader, speaker and mentor for Global Leadership Partners.

For nearly four decades Murphy worked in the financial services industry, and has held positions in sales, marketing, product development, training and development, distribution, agency management, and recruiting. In his latest role he was responsible for managing National Account relationships. In this role he shared business leadership and practice management concepts with business owners, marketing organizations and independent financial professionals. He is a frequent contributor to industry trade journals and a keynote speaker at industry events.

After 37 wonderful years in financial services, it was time for Murphy to give back, to share with others the training, development and experiences he enjoyed by God’s grace, and encourage others who are just starting out or seeking to grow.

Global Leadership Partners identifies, equips and sends business leaders to speak at leadership seminars in partnership with organizations primarily in Eastern Europe, but eventually, around the world. The intent is to foster development of foreign leaders who will courageously stand for strong values and a high ethical standard. This work is based on the belief that the world will be a better place when filled with leaders who lead according to proven values and bedrock principles.

Murphy is a frequent contributor to industry trade journals and is available as a keynote speaker for life insurance industry meetings and training events. He can be reached by telephone at: 312-859-3064. Email: murpd191@gmail.com. Twitter: https://twitter.com/InLifeOnPurpose.