Martha (not her real name, of course) had a dream to leave a legacy. She intended that each of her four grandchildren and her favorite charity would receive a substantial benefit when her house was sold. In fact, that was the only reason she was still rattling around in the old barn.
She would be 81 next year and she resented the repair bills, the taxes and the heating costs that drained her purse on a regular basis. Gone was the warmth of family feasts and the music of children’s laughter. The dog had died, the kids had moved away, and all of her friends were moving into delightful cozy apartments near the water. But she had made a promise to herself that when she died her grandchildren would receive a leg up, like the one that she had dreamed of when she was young and just starting out. So she dusted and vacuumed the great expanse yet again.
She mentioned all of this to her son, a financial planner, one afternoon when she was thinking about another big withdrawal from her dwindling pot — this time for a new roof.
“What if I could show you a way to accomplish all of this and have more cash coming in each month?” he said.
She was skeptical. “When things sound too good to be true, often they are,” she said.
“Well said,” he agreed, “but let me work on this for a bit and see what’s possible.”
The next week he came back with a plan. He started, “Your goal is to leave bequests to the grandchildren and the charity, and move down to the apartment building with your friends. Right?”
She nodded her head in agreement.
“If you sell the house,” he continued,”it will give you a substantial amount of cash. If you take a portion of the proceeds and buy a gift annuity, the gift annuity will pay you a monthly income and make a gift to your charity.”
He showed her the potential income. She gasped.
“I have never had that much coming in each month – I could afford an apartment AND I’d be rich. No heating costs, no taxes and no repair bills! But what about the grandkids?”
The son smiled, “Remember, I said you could do this with a portion of the proceeds. I suggest that the remaining amount is used to buy a life insurance policy that benefits your grandchildren. They would be the beneficiaries. In addition to ensuring each grandchild receives an equal portion as a gift, you can rest assured that insurance proceeds will be paid out quicker than if they had to wait until your estate was settled.
“Oh,” he continued, “there is one final benefit. By selling the house now and using the proceeds to buy a gift annuity and a life insurance policy, you will reduce the fees your estate would normally pay to the government in probate. More of your assets will go where you want them to go – and you will certainly increase your cash flow.”
He paused and then said, “Take your time and just think about it.”
“Think about it?” she said. “Thinking is done, this cold empty house is done, and paying taxes and probate fees are done.” She grinned. “Where do I sign?”