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Brian Littlejohn

Funding Education Expenses for the Next Generation: 4 Tax-Efficient Strategies

Funding Education Expenses

As the cost of college tuition continues to rise, many people are looking for ways to reduce these expenses. And if you’ve accumulated significant savings, you may be seeking tax-efficient ways to transfer your wealth to the next generation. Funding education expenses for your younger family members can be a great way to achieve both objectives. 

Taxes on Gifts

Unfortunately, gifting large sums of money to family members often comes at a cost. Currently, you can gift up to $16,000 annually ($32,000 per couple) per beneficiary without triggering the federal gift tax. The IRS also imposes a generation-skipping transfer tax (GST tax). This tax discourages people from deliberately skipping the next generation in their estate plan in favor of younger generations.

Indeed, these taxes can be a headwind for assisting younger family members financially. Fortunately, there are strategies you can use to transfer wealth without incurring a hefty tax bill—especially if your younger family members seek higher education. 

Consider these four tax-efficient strategies to fund education expenses:

Strategy #1: Fund Education Expenses Directly

One of the simplest ways to fund your family’s education expenses is to pay the educational institution directly. First, you’ll avoid gift and GST taxes. In addition, the amount won’t count towards your annual exclusion or lifetime exemption. 

Notably, this strategy doesn’t limit you to funding college-related expenses. You can pay for any level of education for your family members tax-free, so long as you write the check directly to the institution. 

Strategy #2: “Superfund” a 529 Plan

A 529 plan is an investment account that offers certain tax advantages if the funds go towards qualifying education expenses. Currently, you can contribute up to the annual exclusion amount each year without incurring the gift tax. 

In addition, many people don’t realize that you can contribute up to five years of gifts at once, per beneficiary. Meaning, in 2022 you can contribute up to $80,000 ($160,000 per couple) to a 529 plan at one time. That money can then grow tax-free until the beneficiary is ready to withdraw it.

It’s important to note that the tax treatment of 529 plans varies by state. To avoid unintended tax consequences, be sure to speak with your financial advisor before using this strategy. 

Strategy #3: Make Annual Tax-Free Gifts

If you can’t “superfund” a 529 plan, you can make annual contributions up to the annual gift exclusion limit tax-free. Alternatively, you can fund a Uniform Transfer to Minors Act (UTMA) account, an IRC Section 2503(c) Trust, or a Crummey Trust.

These accounts have similar benefits to a 529 plan but allow you to maintain more control over your gifted assets. However, these strategies can also be more complicated. It’s typically a good idea to consult a trusted advisor to determine what type of account makes most sense for you and your family.

Strategy #4: Lend Your Family Members Money

You may want to support younger family members financially without gifting them money outright. Instead, you can lend them money to pay for their education expenses.

Each month, the IRS releases Applicable Federal Rates, which represent minimum interest rates for family loans to avoid tax complications. These interest rates vary depending on the term of the loan. However, they’re typically more favorable than federal or private student loan rates. 

Funding the Next Generation’s Education Expenses

If you’ve been fortunate enough to accumulate significant wealth during your lifetime, you may be thinking about ways to pay it forward to the next generation. Since the IRS makes it difficult to transfer wealth completely tax-free, careful tax and financial planning can be beneficial. 

If you’d like to speak with a fiduciary wealth advisor about incorporating some of these strategies into your financial plan, please give us a call. We’d be happy to help. 

Stock Market Volatility Is Spiking, But Don’t Panic

Market Volatility Is Spiking

Markets are off to a bumpy start so far this year, and many investors are concerned about what this means for their investment portfolios. Indeed, record-high levels of inflation, the likelihood of rising interest rates, and the ongoing Russia-Ukraine conflict are causing fear and uncertainty in financial markets. But just because market turbulence is uncomfortable doesn’t mean it’s time to panic. If you’re a long-term investor (i.e., you don’t need to access your funds for at least 10 years), it’s important to keep market volatility in perspective.

What’s Causing Recent Market Volatility?

Rising inflation has been a source of concern for investors since the start of the year. Ongoing supply chain issues and labor shortages due to the Covid-19 pandemic sparked an uptick in prices beginning in early 2021. Though the Federal Reserve initially dismissed rising prices as transitory, it has since adjusted its stance. Now, it seems likely the Fed will raise interest rates 0.25% this month.

However, the Fed has been very transparent about its intention to increase interest rates. Consequently, markets are unlikely to react strongly to the news if the Fed proceeds as planned. Instead, investors remain focused on the conflict in Ukraine, which has caused a surge in oil prices and pushed U.S. stock prices lower.

Geopolitical Events & The U.S. Stock Market

U.S. stocks have been on a rollercoaster ride since Russia invaded Ukraine. And while volatility is unsettling, it’s not unusual given the many uncertainties this conflict creates. Though we don’t know how this will play out, nor do we know how long it will last, we are likely to see more volatility in the near-term.

On the bright side, stock market volatility has historically been short-lived following geopolitical events. In the United States, the median stock market drawdown due to geopolitical shocks was -5.7%, according to data from Deutsche Bank. Moreover, these drawdowns tend to take around three weeks to reach a bottom and an additional three weeks to recover. On average, the market was 13% higher from the bottom 12 months after.

Other data shows that since World War II, U.S. stocks were higher three months after a geopolitical shock, on average. And following about two-thirds of those events, they were higher after only one month.

What Does Market Volatility Mean for Long-Term Investors?

Unfortunately, volatility is the price investors pay for investing in stocks. But the good news is long-term investors tend to be rewarded for enduring these periods of discomfort. Finance professionals refer to this concept as the equity risk premium. Investors can expect to earn a higher rate of return on stocks over time to compensate them for taking on higher levels of risk.

In fact, the average annualized return of the S&P 500 Index since its inception in 1926 through the end of 2021 is 10.5%. That includes every correction and bear market since the index’s inception.

In other words, while volatility is an ever-present force, the equity risk premium endures. It’s this trade-off that allows long-term stock investors to outpace inflation and grow their financial resources for the future. Moreover, volatility often provides investors with the opportunity to purchase stocks at discounted prices, which can boost returns over time.

Bottom Line: Stay the Course

Historically, investors who stay the course during periods of uncertainty ultimately reap the rewards. We have no reason to believe this time will be different.

If you’re considering abandoning your investment plan, turn off the news and focus on what you can control instead. In addition, avoid checking your account balances too frequently. This may provoke you to make unnecessary trades that aren’t in your best interest. Lastly, consider working with a trusted financial advisor like Sherwood Wealth Management, who can help you develop an investment strategy that’s aligned with your goals, time horizon, and tolerance for risk. 

This article was also featured in the Post Independent.

You’ve Just Inherited a Windfall—Now What?

Inheriting a Windfall

Inheriting a windfall may seem like the answer to all of your financial problems. Yet sudden wealth is often a double-edged sword.

While money certainly allows you more freedom, it can also create new problems if you aren’t prepared to manage it. Fortunately, there are steps you can take to protect, preserve, and grow your newfound wealth, whether you’ve been anticipating it, or it comes as a complete surprise.

Consider taking these steps After inheriting a windfall:

1. Set Your Funds Aside for a Few Months

Though you may be anxious to put your new wealth to work, the best first step after inheriting a windfall is often to do nothing at all. This is especially important if the inheritance substantially changes your net worth. It may take a while to get comfortable with your new reality.

A conservative rule of thumb is to leave the inheritance untouched for at least 90 days. During that time, you can begin to assemble your wealth management team.

2. Determine the Tax Consequences

As Benjamin Franklin famously said, “Nothing is certain except death and taxes.” If you come into a large sum of money, it’s important to understand the potential tax consequences before making any big decisions.

A CPA or financial planner can help you determine your potential tax liability. In addition, they can recommend strategies to minimize the taxes you owe.

3. Eliminate High-Interest Debt

Once you come to terms with your newfound wealth and understand the tax consequences, you can focus on setting financial goals and developing your wealth plan. Typically, a good first step is to eliminate high-interest debt.

If you have so-called “bad debt” like credit card or other high-interest loans, paying it off with a portion of your inheritance can reduce financial stress and save you money over time. Additionally, if you have student loans you’ve been carrying for a while, now may be a good time to pay those off once and for all.

Having too much debt can create a variety of financial challenges. However, that doesn’t mean you need to eliminate all debt. For example, if you’ve locked in a low interest rate on your mortgage, you may want to focus on other financial priorities before paying off your home.

4. Check Your Emergency Savings

No matter your net worth, it’s important to have cash set aside for unexpected expenses and potential setbacks. Tying your wealth up in investments and illiquid assets can create difficulties if you need cash quickly.

Though most financial experts recommend having three to six months of living expenses in emergency savings, this is a broad rule of thumb. Consider consulting with a trusted financial advisor to determine how much cash makes sense for you.

5. Maximize Tax-Advantaged Accounts

Whether you’re working or not, tax-deferred retirement and health savings accounts can be useful tools for preserving more of your wealth long-term. Be sure to review which accounts are available to you and maximize their benefits.

If you’re still working, you may now have an opportunity to supplement your income with your inheritance so you can max out your retirement plan contributions. In addition, individual retirement accounts offer meaningful tax benefits, especially if you plan to invest long-term.

Lastly, health savings accounts (HSAs) offer unique tax savings as you can contribute, invest, and withdraw your funds tax-free, so long as you use them on qualifying healthcare expenses. However, not everyone is eligible to open an HSA. If you have a qualifying high-deductible health plan (HDHP), you may want to explore this option.

6. Invest for Your Financial Goals

When you come into sudden wealth, it’s not unusual for long-lost friends, family members, and other acquaintances to come out of the woodwork looking for opportunities to prey on your good fortune. While you may be tempted to invest in their startup or investment scheme, remember: if it seems too good to be true, it probably is.

Instead, start by creating a list of financial goals. For example, do you have young children you’d like to send to college? Do you want to stop working altogether or buy your dream vacation home?

Then, work with a trusted financial advisor to develop an investment plan that helps you achieve these goals without taking on unnecessary risk. This approach may not seem as exciting as investing in a friend’s startup venture. However, you’re more likely to preserve and grow your wealth following a disciplined investment plan.

7. Treat Yourself

Having a plan for your wealth is important. However, money should also be enjoyed. If there’s something you’ve always wanted to do but money has been an obstacle, now is the time to make those dreams come true.  

Perhaps you can finally take that exotic vacation you’ve been thinking about. Or your dream car is suddenly within reach. There’s nothing wrong with treating yourself. Just make sure you consider your long-term game plan, too.

Bottom Line: If you’re inheriting a Windfall, Manage Your Wealth So You Can Enjoy It Long-Term

Inheriting a windfall can be exciting and daunting at the same time. These steps can help you set yourself up for success, so your newfound wealth lasts through your lifetime and beyond.

If you anticipate an inheritance or other windfall or have recently come into sudden wealth, speaking with a fiduciary financial advisor like Sherwood Wealth Management can help. We specialize in the unique financial planning needs of inheritors and sudden wealth beneficiaries and always put our clients’ needs first. Please schedule an introductory consultation to see if we may be a good fit to help you manage your wealth.

Assembling Your Wealth Management A-Team After a Windfall

Assembling Your Wealth Management A-Team After a Windfall

After inheriting a windfall, the first step towards protecting your wealth is to assemble your wealth management A-team.

If you are the beneficiary of sudden wealth, you’re probably thrilled–but also potentially nervous about how to handle your money. You don’t want to make a mistake and owe a significant tax bill, purchase bad investments that quickly lose value, or overspend on luxury items you don’t really need.

What you do need is a team of highly qualified professionals who have your best financial interests in mind and can work with you to properly oversee your newfound wealth. After inheriting a windfall, consider these four financial experts who can provide you with the knowledge and advice you need.

A Qualified Fiduciary Financial Advisor

When you are the beneficiary of sudden wealth and need assistance with managing it, a fiduciary financial advisor should be the first person you speak with. An expert fiduciary advisor will work with you to understand your priorities for your wealth and develop a comprehensive plan to meet your objectives.                                                               

Unlike product-driven financial advisors, a fiduciary advisor has a legal obligation to put your best interests ahead of their own. Fiduciary financial advisors generally charge for their services based on a fee-only structure and do not receive any commissions for financial products that they recommend. In addition, they are required to fully disclose any conflicts of interest, must be loyal to their clients, and always act in good faith.

If possible, seek out a financial advisor who holds the CERTIFIED FINANCIAL PLANNER™, CFA®, or other advanced designation. These professionals must pass rigorous exams to demonstrate their knowledge and are typically held to the highest ethical standards.

A Knowledgeable CPA With Understanding of Tax Laws

Next on your wealth management A-team should be a Certified Public Accountant (CPA). A CPA is someone who has obtained significant experience and educational training in accounting skills, including auditing and taxation. They must pass four rigorous exams and usually have relevant, hands-on industry experience.

A CPA can advise on tax issues related to inheriting a windfall. They can also recommend strategies for reducing your potential tax liability. In addition, CPAs can coordinate with your fiduciary financial advisor to ensure that any wealth planning initiatives consider the potential tax ramifications.

An Informed Estate Planning Attorney

As a beneficiary of sudden wealth, it’s imperative to appoint a good estate planning attorney as part of your wealth management A-team. An estate planning attorney is a licensed legal attorney who can advise you on how your assets will be valued, dispersed, and taxed after your death.

In addition to probate advice, they can assist you with the following:

  • Creating a will
  • Designating your beneficiaries
  • Establishing a power of attorney
  • Finding ways to reduce estate tax where possible
  • Setting up trusts to protect your assets

In addition, estate planning attorneys may act on your behalf in case of disputes. They can also ensure your will is carried out according to plan when the time comes.

A Trustworthy Private Banker

Lastly, some beneficiaries of sudden wealth choose to enlist a private banker to help protect their assets. Many large financial institutions offer private banking as an enhanced service for high-net-worth clients.

Private banking often gives you access to a dedicated personal banker. You may also receive discounts or preferential pricing on certain products and services. Private banking may be appropriate for some inheritors of sudden wealth. Still, it’s important to note that private banking usually isn’t an adequate substitute for a full-service, fiduciary wealth manager.

Consider Sherwood Wealth Management for Your Wealth Management A-Team

If you’re the beneficiary of sudden wealth, consider working with a fiduciary financial advisor like Sherwood Wealth Management. Our boutique firm helps clients navigate newfound wealth in a supportive environment where your interests always come first. In addition, we help coordinate all aspects of your financial life. We’ll work with the other members of your wealth management A-team to protect and preserve your assets for generations. Contact us today to schedule an introductory call.

How Wealthy Coloradans Can Prepare for Colorado’s Upcoming Tax Law Changes

Colorado Tax Law Changes

Earlier this year, Colorado lawmakers made significant changes to the state tax code. Indeed, the changes are expected to touch most Colorado taxpayers in one way or another. However, certain adjustments are more likely to impact the wealthiest Coloradans. Since many of these bills go into effect after the New Year, here are three tax changes that may affect your personal finances—and how you can prepare accordingly.

#1: Tax Loopholes for Residents Earning More Than $400,000 Per Year

If you make more than $400,00 annually, you’ll face a new cap on itemized deductions on your Colorado tax return. Beginning in 2022, wealthy households won’t be able to deduct more than $60,000 from their taxable income.

Business owners earning more than $500,000 individually or $1 million jointly won’t be able to take the state portion of the “pass-through” deduction. While this deduction was temporarily eliminated last year, the new bill makes the change permanent.

In addition, Colorado allows residents to contribute money directly to a 529 savings account without paying taxes on it. The new legislation will cap this deduction at $30,000 per household each year.

Consequently, high earners and business owners may want to consider accelerating certain expenses and taking advantage of current loopholes before the end of the year. For example, if you plan on making a large charitable donation in 2022, you can claim the full deduction in 2021 by funding a donor-advised fund (if you itemize). Be sure to work with a fiduciary financial advisor or CPA to look for additional opportunities to reduce your tax bill.

#2: Property Taxes

Under the new tax code, property owners may see temporarily lower property tax rates in tax years 2022 and 2023. Single-family homes would get a property tax discount of about 3%. Meanwhile, apartment property owners would see their property taxes drop by about 5%. Agricultural and renewable energy properties are also likely to see a significant reduction in property taxes.

But that doesn’t necessarily mean your property taxes will go down. House Bill 1164 seeks to correct the balance between what the state pays and what school districts pay to finance public education by allowing districts to slowly raise their mill-levy rates.

In November, Roaring Fork School District voters passed a measure to increase property taxes to source funds for increasing teacher salaries. The mill levy override goes into effect on Jan. 1 and the actual allotment won’t be known until the end of December.

#3: Colorado Tax Law Changes to Capital Gains and Social Security Benefits

Currently, Colorado taxpayers can be exempt from paying state taxes on capital gains in some cases. The new tax code eliminates that deduction, forcing more people to pay state taxes when they sell property and other types of investments.

However, there is some good news for retired wealthy Coloradans. Specifically, if you’re over 65 and receiving Social Security benefits, you may receive a partial tax break next year.

Presently, Colorado taxpayers can deduct up to $24,000 of Social Security income from their taxable income. Beginning in 2022, the deduction will be unlimited, essentially eliminating state taxes on Social Security benefits for people over 65.

Planning for Colorado Tax Law Changes in 2022 and Beyond

While these tax changes are among the most significant in Colorado history, tax laws are continually in flux. And we’re likely to see additional changes at the federal level.

Anticipating relevant changes to the tax code and planning accordingly can help you protect and preserve your wealth over time. Consider working with a fiduciary financial advisor like Sherwood Wealth Management, who can recommend specific strategies to help you minimize your tax bill.

This article also appeared in The Aspen Times.

Inheriting a Windfall? Here’s What to Do When Friends and Family Ask for Money

Giving money to friends and family

Is giving money to friends and family wise? Not always. Here are our tips for evaluating these types of requests.

For most people, coming into a financial windfall sounds like a dream come true. But it doesn’t always turn out that way. In many cases, beneficiaries of sudden wealth can oscillate between feeling elated and anxious. On the one hand, a windfall may allow you to take care of debts and purchase items that were previously outside of reach. At the same time, you may have concerns about managing and preserving your newfound wealth.

In addition, it’s not unusual for friends and family hoping to benefit from your good fortune to come out of the woodwork following a windfall. While you may feel obligated to share the wealth, doing so may not be in your best interest—or theirs. If you’ve recently gained a significant amount of wealth, here are a few tips on how to respond to friends and family who ask for money.

#1: Don’t Talk About the Value of Your Sudden Wealth

While having new wealth can be a very exciting experience, it’s important not to brag or talk about it too much—especially with people you can’t trust. Some people can have negative intentions and will try to get you to part with your assets through scams or just plain pushiness.

Instead, focus on assembling a team of trusted advisors who can help you manage and protect your wealth. They can also help you evaluate and respond to requests for your money, so you avoid potentially harmful decisions.

#2: Consider Your Own Finances

Before sharing your money with friends and family, ask yourself a few questions about your own finances. For example, are you in a position to loan or gift someone money? Is the amount they’re requesting reasonable? And if you decide to comply, do you know how doing so will impact your finances long-term?

In general, it’s best to avoid giving friends or family any money until you’ve come to terms with your new financial status. You may want to consider hiring a fiduciary financial advisor before making any big decisions with your sudden wealth.

#3: Think About Your Relationship

Consider the relationship you have with the person who’s asking you for money. Has your relationship been close for a long time? Or have you found that since your sudden windfall, they’ve been in the picture more often? Have they been supportive of you and your endeavors in the past? And, most importantly, do you trust them?

Generally speaking, you probably don’t want to lend or give money to someone who’s untrustworthy. Moreover, if the person hasn’t been supportive of you in the past, they probably don’t have your best interests in mind now.

#4: Find Out Their Plans

Be sure to do your due diligence before parting with your money. In other words, find out how your friend or family member plans to use the money you give them and make sure it’s legitimate.

It’s one thing to help someone get back on their feet if they’re experiencing a temporary setback. It’s quite another to give someone money for a new television or risky business venture.

#5: Determine Whether You Can Trust Them with Cash

Some people have serious difficulty managing their finances. No matter how much you help them financially, they always seem to end up back where they started. People who can’t be trusted with cash tend to overspend and ignore their financial obligations. They may even have a long line of creditors after them for overdue debts.

If you know this is true of the person asking you for money, be careful not to enable their bad habits. In these cases, it’s usually best to pay for items directly. That way you’re in control of how they use your money—if you decide to give it to them.  

#6: Don’t Give Money to Friends and Family Expecting to Get it Back

If you decide to give money to a friend or family member, do it with the understanding that you probably won’t see the money again. Even if they say they’ll repay you, telling them the money is a gift can help prevent future strains on your relationship if they can’t make good on their promise.

Finally, remember that the IRS sets certain restrictions around giving and lending money to friends and family. Be sure to consult a trusted financial advisor or tax expert to avoid unnecessary tax consequences.  

Sherwood Wealth Management specializes in the financial planning needs of sudden wealth beneficiaries. If we can help you navigate these conversations and develop a plan for your wealth, we encourage you to schedule an introductory call.

Don’t Need Your RMD This Year? Consider Donating It to Charity.

Donating Your RMD to Charity

It’s that time of year again. Temperatures are falling, days are getting shorter, and the holidays are just around the corner. And if you’re 72 or older or recently inherited a traditional IRA, it may be your last chance to take required minimum distributions (RMDs). But what if you don’t need the money? To avoid paying taxes on income you don’t need this year, consider donating your RMD to charity.

What Is a Required Minimum Distribution?

A required minimum distribution (RMD) is the amount of money you must withdraw from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA). The purpose of RMDs is to prevent individuals from using certain types of retirement accounts to avoid paying taxes.

Prior to 2020, account owners had to begin taking RMDs at age 70 ½. However, in 2020 the age changed to 72 as part of the SECURE Act.

In addition, the SECURE Act of 2019 changed the rules for inherited IRAs so that certain heirs may have less time (10 years maximum) to draw down an IRA. This primarily applies to non-spouse beneficiaries who inherit an IRA from someone who passed away in 2020 or later. Spousal beneficiaries and certain eligible non-spouse beneficiaries may be allowed to take RMDs over their life expectancy.

How Are RMDs Taxed?

In most cases, RMDs are treated as ordinary income for tax purposes. However, you don’t have to pay taxes on your basis (any amount you already paid taxes on).

What Happens If You Miss an RMD?

While there are some exceptions, failing to take an RMD typically results in a harsh penalty from the IRS. Indeed, Uncle Sam collects 50% of the shortfall plus taxes. So, if your RMD is $40,000 and you only withdraw $20,000, for example, you’d owe a $10,000 penalty plus income tax on the $20,000 shortfall.

If you miss an RMD, you can ask the IRS for relief by filing Form 5329 with a letter of explanation. However, there are safeguards you can put in place to avoid forgetting. For example, you can hire a fiduciary financial advisor to help you plan.

Donating Your RMD to Charity

Depending on the size of your withdrawal and your other sources of taxable income, RMDs may push you into a higher tax bracket. Or they can increase your tax bill in a year when your taxable income is already higher-than-normal. Fortunately, there are strategies you can leverage to avoid these potential tax consequences.

For example, if you don’t need the income, one option is donating your RMD to charity. A qualified charitable distribution (QCD) allows IRA owners to transfer up to $100,000 directly to charity each year.

A QCD can satisfy all or part of your RMD, depending on your income needs. (You can also donate more than your RMD, so long as you stay below the $100,000 threshold.) QCDs are non-taxable and don’t increase your adjusted gross income (AGI) as an RMD would. A lower AGI may also expand your eligibility for certain tax credits that you otherwise wouldn’t qualify for. 

It’s important to note that the IRS considers the first dollars out of an IRA to be your RMD until you meet the full requirement. In other words, if you decide to do a QCD to reduce your tax liability, be sure to make the QCD before making any other withdrawals from your account.

Planning Is Key When It Comes to RMDs

Required distributions can significantly impact your tax situation if you don’t have a strategy for taking them. Whether you’re in retirement or you’ve recently inherited an IRA, it’s important to plan your withdrawals accordingly to avoid unnecessary tax consequences.

Remember: a QCD is just one option for managing RMDs. There may be other strategies that make more sense for you and your family. Consider working with a fiduciary financial advisor like Sherwood Wealth Management. We can help you develop a withdrawal strategy that helps you achieve your financial objectives while minimizing your annual tax bill. Please schedule a call to get started.

This article also appeared in the Post Independent.

Teaching Kids About Money: 4 Tips for Wealthy Families

Teaching Kids About Money: 4 Tips for Wealthy Families

For high-net-worth families, teaching kids about money at an early age can go a long way towards preserving generational wealth. Indeed, financially educated children tend to make smarter choices with their money throughout life. However, there’s also an emotional component to inheriting wealth. Giving your children the tools to make good financial decisions includes instilling the right values and helping them develop a positive money mindset.  

Tip #1: Be Transparent…to a Point

Money is considered a taboo subject in many wealthy households. But there’s a fine line between transparency and oversharing. While your children may not need to know every detail of your financial life, bringing them into family conversations about money can be beneficial.

Teaching kids about money—specifically, how you accumulated your wealth and what wealth means to you—can impart responsibility and perspective. In addition, sharing positive stories about your family’s wealth can help your children develop a healthy attitude towards money.

Tip #2: Prioritize Financial Literacy

Many parents assume their children are learning about money in school. Unfortunately, this isn’t necessarily the case. In a 2019 survey of over 27,000 people, FINRA Investor Education Foundation found that four in five youths couldn’t pass a financial literacy quiz. One reason for this gap in financial literacy may be that only 18.4% of U.S. high school students must take a personal finance course to graduate, according to research from Montana State University.

When it comes to teaching kids about money, the responsibility still falls squarely on parents’ shoulders. If you don’t feel confident in your own financial knowledge, consider enlisting the services of a fiduciary financial advisor, who can facilitate family conversations about wealth.

Tip #3: Give Them Hands-On Experience

Often, children need to have some skin in the game to truly understand how money works. Paying them a weekly or monthly allowance is an easy way to give them hands-on experience.

In addition, consider creating an incentive system so they learn to save and invest—not just spend. Encourage them to set goals and schedule monthly check-ins to assess (and reward) their progress. 

Tip #4: Lead by Example

Lastly, make sure you practice what you preach. Regardless of what you teach your kids, they’ll notice how you behave when it comes to money. While none of us is perfect, we can all do our best to make smart financial choices for the good of our families. 

Teaching Kids About Money is an Ongoing Process

Teaching kids about money requires a healthy amount of patience, but the payoff is often worth it. Ultimately, you’re preparing your children to inherit, protect, and grow your family’s wealth, so it can be passed on to future generations. In turn, they’ll be better equipped to preserve the legacy you envision for your family.

Sherwood Wealth Management specializes in the financial planning needs of sudden wealth beneficiaries. If we can help you have these conversations with your children and plan your legacy, we encourage you to schedule an introductory call.

3 Ways to Make a Greater Impact with Your Wealth

3 Ways to Make a Greater Impact with Your Wealth

If you’re the beneficiary of a windfall, a prudent first step is to develop a financial plan to ensure you can meet your day-to-day financial obligations and long-term goals. However, affluent individuals and families often have more altruistic goals for their wealth, as well. Fortunately, there are many ways you can effect change by strategically directing your money to organizations and businesses that share your values. Whether your objective is to change the world, shape your legacy, or simply lower your tax bill, here are three ways to make a greater impact with your wealth.

#1: Support Local Businesses

Shopping local is a great way to strengthen your community by boosting the local economy and providing jobs for residents. In fact, for every $100 spent at small businesses, $48 is put back into the local economy, according to data from Intuit Mint. Furthermore, the Small Business Administration reports that small companies create 1.5 million jobs annually and account for 64% of new jobs created in the United States.

In addition, shopping local can help reduce reliance on larger chains with less commitment to their communities. These larger corporations may also have less responsible business practices than the businesses in your community. If you want to make a greater impact with your wealth, supporting local businesses is a great place to start.

#2: Give Strategically

Americans tend to be very charitable. Indeed, charitable giving accounted for 2.3% of gross domestic product in 2020, according to National Philanthropic Trust. Moreover, 86% of affluent households maintained or increased their giving in 2020 despite uncertainty about further spread of COVID-19.

Despite our charitable tendencies, most of us fail to measure the impact of our gift after writing the check. Fortunately, you can make a greater impact with your wealth by giving more strategically.

For example, donor-advised funds (DAFs) are an effective and easy way to financially support the causes most important to you. DAFs have exploded in popularity in recent years. In 2020, assets totaled $142 billion, according to the 2020 Donor-Advised Fund Report. DAFs are set up within a charitable organization such as a community foundation. Among other benefits, they offer increased flexibility and efficiency over many other charitable giving methods.

#3: Invest with a Purpose

Environmental, social, and governance (ESG) investing is becoming increasingly mainstream among investors who want to do well by doing good. According to research from Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management. 

There are many ways to invest with a purpose. Impact investing, socially responsible investing, and green investing are just a few examples. These strategies allow investors to support companies with responsible business practices while earning a positive return.  If you wish to make a greater impact with your wealth, aligning your investment dollars with your values can help you achieve this goal without sacrificing financial gain.

A Trusted Advisor Can Help You Make a Greater Impact with Your Wealth

Wealth can help you achieve many goals, from providing financially for loved ones to effecting meaningful societal change. If you would like to make a greater impact with your wealth, a trusted financial advisor can help you develop a plan to ensure your efforts are effective.

Sherwood Wealth Management specializes in the unique financial planning needs and objectives of sudden wealth beneficiaries. If we can help you develop a plan for your newfound wealth, please do not hesitate to schedule a call. We’d love to hear from you.