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Avoid Gray Hairs When Advising Grandparents

January 21, 2016

While being a grandparent is as rewarding as it’s ever been, the role seems to entail more responsibilities than for previous generations. The recent economic environment has meant that more grandparents are living with their adult children or even grandchildren, and feeling a sense of obligation to assist them with financial challenges or other family difficulties, such as divorce or illness.

A grandparent’s ability to help their children and grandchildren often requires retirement plan adjustments, especially if they are to ensure they’re on track to meet their own financial goals. There are practical steps advisors can take to ensure their clients are successful in achieving their goals.

Clarify goals

As with any plan for financial security, the most important step is helping clients determine their specific goal. In the case of grandparents, do they want to fund a college education? Help children or grandchildren with current daily living expenses? Perhaps they want to leave money that will be available in later years after they’ve passed away?

Get the full picture

Before you devise a plan for your client it’s important to get their full financial picture. Depending on the wealth of your client, they may have a number of resources, such as accountants, lawyers and other professionals, who have in-depth knowledge about their financial situation. By reaching out to these partners you can get a better sense of your client’s assets and develop the best plan to meet their needs.

Save for retirement or pay for college?

Clients often wonder how much money they should allocate to their savings versus how much they should set aside to help their grandchildren with school fees or college tuition. Prevailing financial wisdom is that they should put their retirement security first and pay for college second. After all, it’s possible to borrow for college but not possible to borrow for retirement. Their young scholars have the ability to apply for scholarships, grants, federal work study programs and student loans, either unsubsidized or subsidized, to help with the cost of education. Nonetheless, your clients may need to push back their retirement date to gain more time to build retirement savings.

The right product for the right need

Help them learn about the wide variety of products that can enable clients to provide financial support to their children and grandchildren. Share how they can take advantage of the ability to make tax-free gifts of up to $14,000 per year per beneficiary as soon as they can. Let your clients know they can give monetary gifts to their grandchildren through a “generation-skipping” tax exemption for gifts of up to $5.45 million.

Other products that may be useful for grandparents seeking to provide for their grandchildren’s education include pre-paid tuition arrangements, “529 plan” tax-advantaged savings vehicles and Coverdell Education Savings Accounts. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are still relevant because investment contributions are not restricted, with the first $1,050 per year tax-exempt. Some of these options may have a high or low impact on the student, so consult with a tax advisor to outline the best option for them. Another option for older clients is to purchase a life-insurance policy that has a cash-value component, in addition to the death benefit. This provides the option for tapping into the cash value for gifting.

Partner with other professionals

The products that make the most sense for your client may not be among your specialties. If that’s the case, partner with another advisor in your agency or identify another financial advisor who can provide a specialized component. Remember that the goal is to provide a holistic strategy for your client, and collaboration with other specialists helps to ensure this takes place.

Gather the family

Once a plan has been created, an advisor should discuss with the client if and when they could have a family meeting to share details of the plan with the full family. The advisor should explain how the plan came together and offer any tips, suggestions and advice for all family members, including the children. This may also help position the advisor as an expert in the eyes of the children and eventually lead to additional opportunities down the road.

Self-care comes first

Just as flight attendants warn adult passengers to hook up their own oxygen before assisting children in the event of a loss in cabin pressure, advisors should emphasize to grandparents that they prioritize their own health and financial well-being before others’. While caring for grandchildren does not mean an automatic decline in grandparents’ health, it can be stressful in a variety of ways. A busier schedule can mean a lack of time for routine medical appointments and neglect of one’s own well-being or leisure activities that also bring them joy. Maintaining their health allows them to remain active and involved in their grandchildren’s world. They’ll have the satisfaction of providing a positive, reassuring presence in their lives, while helping to prepare the next generation of their family for the future.