What to Give the Grandkids?

    Legacy Gifts Keep Giving

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    Traditional gifts of the season tend to get broken, forgotten, or discarded far too quickly. Why not give a gift with long-term impact and long-term value? Here are three ideas that will transcend the season: Roth IRAs, Uniform Gift to Minors Act (UGMA), and cash value-based life insurance.

    A Roth IRA is a great savings tool for teenagers who are working. The account is created in the child’s name and is funded with after-tax money that can be used during the child’s lifetime with many different qualifying events. The grandparent can contribute to the Roth IRA each year up to what the grandchild earns, not to exceed the current year’s contribution limit. With a Roth IRA, the account growth is never taxed when distributed after age fifty-nine-and-a-half. There are several exceptions to this rule, including a first-time homeowner’s purchase and secondary education expenses. Another important thing to note is that once funds are given in this way, they become the child’s money to use as desired.

    For grandchildren who are too young to work, the UGMA may be a good option. This account is created in the child’s name with an adult named as custodian of the account. Control of the account is the responsibility of the custodian until the child reaches majority age, which varies by state. Any amount of money can be contributed to the account, and just like the Roth IRA, the contribution amount can be determined each year. This simply means that you do not have to add money each year, nor do the amounts have to be the same each year. However, there can be some tax implications, so please check with your CPA about those considerations.

    Cash value life insurance can be an amazing gift, as well. It can provide a gift to the child that reminds them of the giver long after he or she is gone. A cash value life insurance policy can provide protection of insurability (i.e., regardless of their future health) at a fixed premium lower than what would be paid if purchased later in life. The policy can be created with a set premium to be paid for a specific period of time, so with this policy the grandparent can remember grandchildren in a systematic way that is compatible with his or her discretionary income. Cash value life insurance policies may have riders added to them that are powerful tools in light of unexpected disability or chronic-care needs. The product’s flexible design also makes it a gift that endures life. Unlike the Roth and the UGMA, this insurance policy can be owned by the grandparent for as long as desired. When the grandparent is confident that the grandchild is mature enough to manage the contract, ownership can be reassigned to the grandchild. The contract’s cash value can serve as an emergency fund for the grandchild when first stepping out on his own. If the cash value remains untouched later in life, it also can be an excellent complement to retirement savings. Regardless, this type of gifting puts the child ahead on the path for successful financial planning. As the child grows into a young adult, the insurance plan also becomes a fabulous discussion-starter to engage them in positive financial strategies for life.

    These are just a few examples of gifts that can get you started on the path of legacy giving. Legacy strategies do exist, so this year, grandparents (and yes, some parents), might want to give something that will prove far more meaningful and beneficial than a traditional gift.

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    Angie Shay
    Angie Z. Shay has worked in the financial services industry for more than 22 years. She is president of THE PATH Financial Strategies, LLC. Angie Shay is a financial adviser with Eagle Strategies LLC, a Registered Investment Adviser and an indirect wholly owned subsidiary of New York Life Insurance Company. THE PATH Financial Strategies, LLC is not owned or operated by Eagle Strategies or its affiliates. Neither THE PATH Financial Strategies, LLC or Angie Z. Shay provide tax or legal advice.