A Credit Card Free Holiday – Can it Happen?

A recent survey found that among Millennial parents, nearly half have received financial support from their Baby Boomer parents in the past year, and 69% received financial support specifically for their own young children.(1) Another poll found that 3 in 4 parents with adult children have helped them pay both debts and living expenses.(2)

Clearly, it is common practice nowadays for parents to provide financially for both their adult children and their grandchildren. Many Baby Boomers are at a place where they are financially secure and have the desire to give their kids a leg up from where they were at the same age. For 2019, up to $15,000 can be gifted from one individual to another without having any tax effects. Many parents are reaching that limit with their gifts to their adult children for their own expenses and gifts to their grandchildren to fund their education and contribute towards their future well-being.

When Your Parents Give You Money

One-Time Gifts

The first thing you have to do is decide what to do with the money. Whether or not it is a one-time gift or will be ongoing will greatly influence your decision. If it is a one-time gift, it likely cannot be used to enhance your current lifestyle. Rather, you could use it to strengthen your current position by paying down debt. You could also use it for a one-time luxury, such as a vacation. Another good use would be to invest it to prepare for the future.

Of course, what you choose to do with the money will depend greatly upon your current financial situation and goals. If you decide to save it for the future, that brings up another set of questions. Where should you put the money? What kind of investment opportunities are available? How soon do you plan on needing it? The answer to each of those questions will determine what you do with the money, whether you put it in a money market account, invest in a brokerage account, or use it to fund your retirement accounts.

Ongoing Gifts

Though they are usually more beneficial, ongoing gifts are actually harder to plan for. You have to ask the same questions as above, but you also have many more options. If it will be a regular gift, you could use it to enhance your lifestyle instead of merely paying down debt or taking a vacation. Or you could use it to take advantage of a business opportunity that wouldn’t be feasible otherwise.

The hard part about ongoing gifts is knowing how safe it is to depend on them. If you make decisions based on the gift, what happens if it doesn’t come or is given sporadically? Many people fear sounding greedy or ungrateful if they ask their parents about money that they expected to receive but didn’t. The dependability of the gift money and the kind of relationship you have with your parents should be taken into account when planning for ongoing gifts.

One thing to be careful of, especially with ongoing gifts, is to not let it affect the stewardship of your own money. It is easy to change good habits and loosen the reins on your spending when you have extra money coming in. But is that wise?

Your parents are giving you money because they want to help you. Are they really helping you if you are simply becoming more careless? You should apply the same careful money habits as you would without the gift, even if it creates enough margin where you wouldn’t have to. Remember, what your parents give you is a gift. It is not required nor guaranteed, and you should manage it with that in mind.

When Your Parents Give Your Children Money

A lot of the same issues apply when your parents gift your children money or give it directly to you but for their benefit, especially when you aren’t sure if the gift will be regular and are not comfortable asking.

First, you need to decide if you should use it to meet current needs or future ones. If you save the money for your children’s college education, it could help them pay for a better school, get a better job, and avoid student debt. But if the money is spent today, it could pay for their childcare and thereby enable you to save more for retirement or get a house in a better school district, which could lead to a better education, admission to better colleges, and scholarships to avoid debt. There is no one right answer and it requires careful consideration of your family’s own unique circumstances and priorities.

College Funding

If you do decide to save the money for your children’s future, that brings up another host of questions. Where is the best place to put the money until you need it? A savings account? A 529 Plan? An UTMA? The answer will depend on a number of factors, including how liquid you want the money to be without penalties and how much control you want to maintain over the money. There are a number of options available to you, each with its advantages and disadvantages.

When saving for college, you need to have a target goal in mind. It is important to estimate the cost of college for your child in order to measure how much you need to be investing, the types of investments you should use, and to monitor your progress. Another reason to have a set goal is to avoid overfunding a college account. There should be a stopping point where you no longer invest in a 529 but rather divert the funds elsewhere. While leftover 529 accounts can be transferred to family members or have the funds removed with penalties, it may be better to simply avoid overfunding them in the first place.

Multiple Children

Having multiple children makes things even more complex because it can be hard to keep things fair and equitable. What happens when your parents, who gave a lot towards your firstborn, begin to taper off the gifts with subsequent children? Or perhaps the same amount was given, but it was divided by more and more children? What can you do so that the later children are not at a disadvantage?

Also, what happens when the gifts begin after you already have more than one child? If your parents start funding a college account when your first child is 5 and your second is 1, then the second may end up with a much higher balance upon entrance to college. What can you do and what should you do to help balance things out?

How I Can Help

These are some of the questions that arise when parents gift money to their adult children and grandchildren. Depending on the scenario, things can quickly become complex. Not only do you have to decide what to do with the money, weighing the benefits and opportunity costs, but you have to decide the best way to accomplish your goals with that money.

This is a common situation that my clients find themselves in when they turn to me for help. Together, we first determine the circumstances in which the money was given and the intent behind it. If your parents had a specific purpose in giving you the money, it is often best to honor that purpose.

Next, we discuss how you can use the money in a way that doesn’t distract you from your goals or cause you to become financially irresponsible. We talk through different scenarios in advance and address the “what-ifs” that could occur in each in order to develop a solid plan. My clients really enjoy having me there as a sounding board to bounce ideas off of, as well as to hear my insights based on the experience that I have had myself and with other clients.

If you’ve found yourself the recipient of financial gifts from your parents, or just need someone to help you sort through your own finances, call me at (949) 221-8105 x 2128 or email me at michael.loo@lpl.com. I would love to partner with you so that you can make wise financial decisions to build a secure future for you and your family.

(1) https://s1.q4cdn.com/959385532/files/doc_downloads/research/2017/Millennial-Parents-Survey-Key-Findings.pdf

(2) https://www.creditcards.com/credit-card-news/pay-adult-childrens-debt-poll.php

Imagine a recipe box that’s been passed down from your great grandmother. It sits on your kitchen counter, full of cards containing not just ingredient lists and cooking instructions,  but handwritten notes detailing memories about each meal. It’s these personal anecdotes that transform food into feeling through stories.

That’s how a legacy letter works. It’s a way to pass on what matters most to you.

What is a Legacy Letter?

Unlike a will that distributes material possessions, a legacy letter, sometimes known as an ethical will, passes on your values, life lessons, hopes, and personal history to future generations. It serves to bridge the gap between the tangible inheritance you might leave behind and the intangible wisdom you've gathered throughout your life.

While a legacy letter can complement a legal will, it should be thought of as a personal document rather than a legal directive. You can consider your legacy letter a conversation across time – a way to share yourself with your great-grandchildren and future generations.

What are the Benefits of Writing a Legacy Letter?

Your legacy letter will benefit both you as the writer and the letter’s recipients. For the writer, it offers the chance to reflect on and crystallize what matters most in your life. We find the process often brings clarity to our clients around their deepest values and the impact they hope their assets will have on their loved ones.

For recipients, your legacy letter can help ground them in their family history, which often gets reduced to dates and basic facts. Through your letter, you give them the gift of context, understanding, and connection. Your legacy letter becomes a way for your perspective and guidance to live on after you’re gone.

What are the Components of a Legacy Letter?

Just like your life, your legacy letter is entirely unique. And while there’s certainly no required formula for one, they most often include the following elements:

1. Values and Beliefs: Explain not just what you believe in, but why. Share the experiences that challenged or reinforced your values.
2. Life Lessons: Discuss both your successes and failures. What decisions are you most proud of? What would you do differently? Mistakes and vulnerable moments are often more effective teachers than perfection.
3. Family Stories: Include meaningful anecdotes about family members, especially those your recipients never met. What family traditions hold special meaning and why?
4. Hopes for the Future: Express your wishes for future generations without being prescriptive or giving explicit direction. Share the dreams you have for your family’s future.

Who Should You Share Your Legacy Letter With?

Most people write legacy letters primarily for their children and grandchildren, but you might also consider including other family members and close friends.

Having an idea of who your audience will be before you start writing will help you strike the right tone and include the most relevant content. Keep in mind that future generations will likely read your letter as well.

How and When to Share Your Legacy Letter

The timing and method of sharing your legacy letter deserve careful consideration. Some people choose to save their letters to be read after they pass, but there can be profound value in sharing your words and story while you’re still here, particularly during significant life moments such as a child’s graduation, before a wedding, or upon the birth of a grandchild.

If you decide to share your letter while living, you have several options:

Reading it aloud in person allows you to add context and emotion to your words and can lead to meaningful family discussions that encourage others to share their own stories.

Creating individual copies for each recipient lets them absorb your words privately and return to them often. Some people include photos or other meaningful documents alongside their letters.

Recording yourself reading your letter combines your words and your voice into a powerful audio-visual legacy that can also be relistened to as often as the recipient wants.

If you prefer your letter to be shared after your passing, ensure someone you trust knows where to find it and understands your wishes for its distribution. Consider including it with your other important documents or lodging it with your attorney.

Timing isn't just about when others receive your letter; it's also about when you write it. Don't wait for the “perfect” moment or until you feel you have all the answers. Your perspective and wisdom are valuable now, and you can always edit or write additional letters as you gain new insights or want to share different aspects of your story.

How to Get Started: Five Questions to Ask Yourself

Deciding to write your legacy letter is the first step, but it can be challenging to know exactly where to begin. We’ve found these questions help jumpstart the writing process:

1. What moments of adversity have shaped who you are? Don't just list challenges you've overcome. Dig deeper into how these experiences changed your perspective and influenced your decisions, and share what you learned from your most difficult times that might help future generations navigate their own struggles?
2. What family traditions or values do you want to share? Think beyond the obvious. Maybe your grandfather's habit of giving anonymous gifts to neighbors in need taught you about quiet generosity, or perhaps your mother's insistence on Sunday dinners wasn't just about food, but about creating unbreakable family bonds.
3. What parts of your story might be lost if you don't share them? Consider the small but significant moments that shaped your path. Maybe it was a chance encounter that ultimately led you to your career, or a split-second decision that changed everything. It’s these personal details that often get lost in formal family histories but can be incredibly meaningful to future generations.
4. What do you wish you knew about your own ancestors? Reflect on the questions you have about your family history. What gaps in your own family narrative do you wish were filled? Use these curiosities to guide what you share about yourself.
5. What misunderstandings about your life choices do you want to clarify? Perhaps you made a later-in-life career change that seemed risky to others, or your decision to end a marriage wasn't fully understood. Your legacy letter offers the opportunity to share your reasoning and the wisdom that guided these choices, but take care not to sound defensive. The goal is to help your loved ones and future generations make their own choices that are best for them.

Some people find the thought of writing intimidating, but your legacy letter isn’t about being the most eloquent or perfectly polished. It’s about being authentic and genuine, keeping your audience in mind, and truly reflecting on what matters most in your life.

Start today. Your story matters, and future generations will be grateful you took the time to share it.