Giving to your children while you're still living is a lot more satisfying than leaving instructions spelled out in a will to be followed when you're no longer around.
Some 60 percent of parents would would rather give to their children -- and grandchildren -- while they are still able to watch the younger generation spend it, according to a new survey by UBS Wealth Management Americas. The problem is that the older generation doesn't feel confident giving away money that they might need, especially with health care costs as unpredictable as they are.
Jeff Burke, first vice president for wealth management at UBS, offers two ideas for "giving while living" that still enables you to keep a grip on money.
Open a 529 college savings account. These popular college savings plans can remain under a grandparent's control. Plus you can switch the beneficiary between grandchildren -- or children, if they should decide to go back to school late in life. If something happens and you need the money, you'll have to pay income tax on the earnings portion of a distribution, a 10 percent penalty on the earnings, plus if you'd deducted contributions on your state income tax return, you will generally have to report the "recaptured income" on your state forms. But that's small potatoes if you really need the money for yourself.
Pledge a mortgage. One increasingly popular way for parents to help their grown children buy a house is through a "pledged-asset mortgage." Burke says these work well when the adult children have a good income but not enough money to cover a down payment. In lieu of a down payment, Fannie Mae requires someone -- parents, grandparents are among those eligible under Fannie Mae's policy -- to pledge 30 percent of the unpaid principal balance on a 100 percent loan-to-value mortgage. Mortgage insurance isn't required. The person who makes the pledge doesn't have to sell her assets -- the money can remain in its current location, earning a return. The drawback is that if the owner of the home defaults, the person who makes the pledge will lose the pledge money. "This is a great way to leverage intergenerational wealth," Burke says.
Read more about getting a 529 plan for your grandchildren.