According to a recent study, "The Bank of Mom and Dad: a Source of Comfort for Everyone," an increasing number of parents in the U.S. are worried about their adult children's financial status and would be willing to sacrifice their own fiscal health. The study, issued by the BMO Wealth Institute and described in CNN Money's "Half of U.S. Parents Would Retire Later to Support Adult Children Financially," makes it clear that parental worry needs to be balanced with ensuring the parents' own finances.
An experienced estate planning attorney can assist parents with this concern to reach their own financial goals, including retirement—and to add in financial support to their children into a comprehensive plan.
Parents should remember that today's young adults face unique financial challenges and may require different levels of support than they themselves received. If parents and children talk about the amount of support they expect to provide or receive, they can avoid misunderstandings that could jeopardize their financial futures. The report offers parents the following financial planning tips:
- Start Early. You should try to teach your children about money at an early age. Understanding the basics of personal finance at a young age can help set up a child for future financial success and independence.
- Implement a Roth IRA. A Roth IRA can make savings more tax efficient and extend parents' ability to use their resources to meet financial goals. Although annual contributions are limited by IRS guidelines, income earned in an IRA is generally not subject to any federal or state tax.
- Take Advantage of the Gift Tax. When possible, use the exceptions in the federal gift tax rules to increase the benefit available to children and dependent parents, such as gifts made for tuition or to pay medical expenses.
- Use Estate Planning to Provide Financial Support and Peace of Mind. With the proper planning, parents can ensure children receive assets in the most efficient manner. Insurance planning can be a way of adding income to your estate, when done in a coordinated fashion. An estate planning attorney will be able to help you understand the benefits and limitations of all estate planning tools and how they can be used to help your adult children.
Reference: CNN Money (December 22, 2015) "Half of U.S. Parents Would Retire Later to Support Adult Children Financially"