“Gifting”: a fairly simple concept. Any child can tell you that they are a big fan of gifts! But when you are speaking of gifting from a financial planning standpoint, things may start to seem confusing – with issues of control, tax consequences, estate benefits. Does it all seem so overwhelming that you want to go back to the days when “gifting” meant wrapping up a tie or a toy?

Don’t despair. Your financial advisor can give you some simple, common-sense advice and you may find that gifting, reasonably, provides huge benefits (taxwise and otherwise) for both you and for your heirs – or for anyone who you choose to designate as your gift recipient.

Quite simply, gifting means transferring assets from your own investment portfolio to your children or other beneficiaries of your choosing during your lifetime. The benefit is that your taxable estate is reduced – you are paying less taxes in the present, and your heirs will have less taxes to pay on anything passed along, after you pass.

Gifting also allows you to provide income for yourself or for your heirs, if arranged properly. You can also provide for a child’s education – your own child, a grandchild, or anyone – again, with very beneficial tax consequences.

By current tax law, you can gift up to $12,000 (per person, per year) – tax free – called an annual exclusion. You need not file a separate tax return for this amount.

Even beyond that amount, if you are directly paying expenses to a school – for tuition, for example, paid directly to the institution (not paid to the student and then used for school expenses) that amount paid – sometimes quite a hefty amount! – does not count towards that “annual exclusion”. You can pay the tuition and then also gift that child up to $12,000 without tax consequences for you or for the recipient. The same goes for paying medical expenses directly to a provider – something to consider if you are part of the “sandwich generation”, taking care of children and aging parents.

Another option for gifting is to do so through Missouri’s 529 plan, which allows for an “accelerated” gifting strategy of combining 5 years of donations in one year. 529 plans can be used to pay for qualified education expenses at almost any college or secondary school – but have the advantage of having you, as the giver, retain control over the money until it is used – when used, gains are taxed at the student’s rate, typically much lower than your own.

All in all gifting is an important component of a wealth transfer plan, but there are many other pieces to consider. You should ask your financial advisor for his or her advice and plan ahead for your own benefit, as well as your heirs.

You’ve made the decision to work with a wealth management and/or financial advisor to help with your finances – but your work’s not done yet! It’s important to do some research on what you are looking for, and determine what you will ask your advisor to do. Here in Missouri, wealth management professionals can help with everything from:

• Transfer of wealth
• Missouri life insurance
• Missouri fixed annuities
• Investments such as funds, stocks, or “alternative investments”
• Missouri final expenses

That list may seem deceptively simple. It is worthwhile to consult a professional about each and every one of the above topics, as they are multi-faceted. For life insurance, do you want a term policy? Variable universal life? Fixed life? The answer depends on what you are looking for the policy to do – protect your estate, give you money to retire on, or provide a cushion in the case of your untimely death for your spouse or heirs. For transfer of wealth – there’s a lot more involved than simply turning over cash or stocks to your dependents. Without a careful plan, you’ll be disappointed with how much the government can claim as their own. And “alternative investments” do not even sound simple – things such as direct investment in real estate, or access to complicated investment vehicles such as separately managed accounts – are areas where a wealth management advisor and his/her experience can help put your money to work – in ways that the average investor does not even realize exist.

When you meet your advisor, you will need to do some preparation.

• Gather the important papers and files that you’ve kept over the years; your advisor will want to review recent tax returns, investments, retirement plan, wills, and insurance policies, if they exist.
• Know what you want to discuss, and together with your advisor, identify areas where you may need assistance, such as building up a retirement income or improving returns. If you only want help with a specific area of your portfolio (ie retirement planning), tell your advisor that (and stick to your guns!)
• Together with your advisor, review your investment timelines and willingness to take on risk – he or she will likely have you fill out a risk tolerance questionnaire.
• If you’ve elected to work with an advisor who will develop a complete financial plan, you’ll want to discuss that plan and determine if you need to work with additional specialists (such as accountants or attorneys) to implement key pieces of the plan. Ask how often it makes sense to meet with your advisor to update or review your plan.

A little legwork and preparation can make your time spent with your wealth management advisor beneficial for you both.