Still Supporting Your Adult Children? Consider This Option

From: Jeff Salisbury <jeff.salisbury@xmission.com>
Subject: Still Supporting Your Adult Children? Consider This Option
Date: Wed, 15 Dec 1999 17:09:59 -0700

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From time to time, I meet parents who are retired yet still supporting
their children financially.  While I don't think this is a good idea
(read a copy of the Millionaire Next Door by Dr. Tom Stanley), I find it
particularly sad when Mom and Dad are taking money out of their cash
flow and decreasing their life style, just to help junior make his
mortgage payment.  Here's a better way to help the kids and not get
pinched in the pocket book.

Rather than taking the money out of our cash flow, you can turn a low
yielding asset into income.  For example, the average stock in the S&P
500 only pays a 1.25% dividend (Barrons, August 16, 1999).  So many
stocks will not produce a large current income.  Or maybe you have raw
land which pays you nothing.  Those assets can be converted into extra
current income that can be used to help junior.  Worried about the
capital gains?  Here's how to beat that.

A capital gains elimination trust (10% of the money must be left to
charity, so this is often called a charitable reminder trust) allows you
to sell the asset (stocks, real estate, etc), pay no capital gains tax,
reinvest the proceeds for higher income, and receive that income.  How
much income can you receive?  As long as the calculations indicate that
10% of the balance will remain for charity, the income and the original
capital can all be paid out over time to Mom and Dad or to junior. 
Using this method, the parents don't need to cut into their regular cash
flow in order to help their child.

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