Some monetary gifts are better than others, and I'm not just talking about the dollar value. I have seen a couple of clients who received large inheritances in their 50s and 60s and were actually a little upset. It was a bittersweet gift for them because when they really could have used the money - 10 to 25 years earlier - there was nothing. Now that they were at a stage where they were in good financial shape, the extra money no longer meant as much.
If they had received a quarter as much money in their time of greater financial need, it would have meant far more, they said.
In a previous column, I wrote about how the value of a dollar to you will change significantly over a lifetime. The idea is that while $1 has the same monetary value to everyone, for some people, at a certain point in their lives, that dollar is no longer worth very much. At that point, it is time to look at giving some to others who will place a much greater value on that same dollar.
The big question is: How do you know if you are ever far enough along the financial curve that you can really start to give while you live?
To help answer that question, I have put together a simple quiz. For one of the questions, you will need to use a free, anonymous online tool to uncover the likely size of your estate:
1) Do you live paycheque to paycheque (or pension cheque)? Yes=5 No=0
2) If you won $25,000 today, would it really improve your life? Yes=5 No=0
3) For these questions, use the Retirement 100 tool to determine your score:
Is your Retirement 100 score 30 or less? Yes=5
Is your Retirement 100 score between 40 and 70? Yes=3
Is your Retirement 100 score 80 or higher? Yes=0
4) What is your age?
Are you 75 or older? Yes=0
Are you between 55 and 74? Yes=2
Are you between 40 and 54? Yes=4
Are you under 40? Yes=5
5) Will your expenses be higher than your after-tax total income this year? Yes=3 No=0
6) Will your expenses likely be higher than your after-tax total income in 5 years? Yes=3 No=0
What does your score mean?
If your total score is 4 or under: A dollar has a low value for you. The same dollar would have a much higher value for a child, grandchild or charity. It is now time to seriously consider gifting some money to family or giving to charity.
If your score is between 5 and 9: A dollar has some value for you. While it may not be time to start giving money away, it should be part of your planning discussions over the next 10 years.
If your score is 10 or higher: A dollar has a real value for you. Your financial focus should remain on looking out for your immediate and long-term needs.
In most cases, people never give away money until they are gone. This can be a mistake. Especially in Canada, where there is no gifting tax and charitable donations receive a healthy tax credit, for some people, the best strategy might be to give while you live. The financial rationale includes saving on taxes and probate fees. The emotional rationale is simply that your extra money no longer has real value to you, but can really help others close to you. In addition, this extra money will go to others at some point anyway.
If you (or your parents) scored 4 or lower on the quiz and have not developed a giving plan, I would strongly suggest working with a certified financial planner who can help you determine not only "how much" but also how and when to begin gifting.
While still maintaining your excellent financial position, you may just find that ironically, this strategy is the most personally enriching of all.
Ted Rechtshaffen