No. of Recommendations: 20
As this subject has come up on the Berkshire Board, I thought I'd
share my strategy here.
I have neices and nephews, but no children of my own. Some years
ago, I gifted them shares of Berkshire Hathaway, and, more recently,
matched contributions to encourage them to set up Roth IRA accounts
while they had low incomes.
My eventual bequest will be split 50/50 between my siblings and
their children.
As many are aware, there is some value to providing financial
assets sooner rather than later (hence the shares of BRK), so
it's been on my mind for a while. Perhaps the main factor in
getting me to act now has been my retirement move to Portugal.
I'm under a residency regimen that basically allows me to avoid
most taxes on income, but has a flat 28% tax on capital gains. The
distributions from my IRA's are considered income, but my taxable
US accounts are subject to the 28% capital gains tax.
Inheritance distributions within the US will not be taxable, so
there's no tax-related reasons I should start transferring assets
now, but there are other reasons to consider doing so sooner
than later.
Starting this year, my plan is to transfer a fixed number of
QQQE shares to everyone on a yearly basis for the next 10 years.
Each distribution will fall below the IRS reporting threshold
of $19000 (2025). If the value of the scheduled distributions
rises above this amount, I'll simply lower the number of shares
and extend the number of years of distributions. At the end of
approximately 10 years everyone ends up with the original planned
distribution total.
I first broached this subject last year with my parents. Afterwards,
I had separate conversations with each of my siblings to outline my
plans and give them an opportunity to ask questions. Everyone was
on board before I contacted my neices and nephews.
Each recipient already had (or recently opened) an investment
account with Charles Schwab. This wasn't strictly necessary,
but it simplies the annual transfer process.
The first tranche was distributed earlier this year. It went
out with a letter to everyone, along with the documentation
showing my cost basis (which they will assume). They will
eventually pay capital gains taxes when they sell their shares,
but a) at lower US tax rates; b) they have control over the
timing can schedule the sales of shares at their discretion.
Each subsequent tranche will be transferred annually on my
birthday, over the next nine years. In addition to the tax
benefit, I think there is some psychological value in spreading
out the distributions over a longer period of time. They
might be less likely to do something stupid with annual
installments than a single sudden windfall.
What do I hope for their future?
In his novel Anna Karenina, Leo Tolstoy wrote:
"Happy families are all alike; every unhappy family is unhappy in its own way."
I am blessed with a happy extended family. No addictions, no gambling,
no abusive relationships.
The distributions are sent with no strings attached. I want
each of my family members to make their own decisions.
As I explained to their parents, my hope is to provide them
with an understanding of what it means to have investments
grow over time -- hopefully decades. And to give them a sense
of security -- as they'll gradually have funds they can access
when necessary, without waiting for their future inheritance.
-Rubic
