Three Levels of Wealth, Part Four: The Four Residual Wealth Transfers

by Jeff C. Johnson

$20 bill in hand

Residual wealth is money above the amount that you will need to live the rest of your life comfortably. It’s an individual number that should be determined with the assistance of an experienced financial professional. If you are in this bracket, consider the following:

You now have two buckets of money. The first is the investments and resources that will provide cash flow for you to pay your expenses for your lifetime, with a margin for mistakes, changes in the world and economy, and for extra longevity.

The second is the cash, investments, property, and resources that will not be needed during your lifetime. There are four ways, and four only, that this unspent money will get transferred from your accounts or your estate.

  1. Most people leave their money at the end of their life to their beneficiaries, usually their children.
  2. Some provide in their will that, at their death, a certain amount of money or a certain asset be left to one or more favored charities.
  3. A few people will transfer money to their heirs during their lifetime, often on birthdays or holidays, and usually with a check, in increments up to the gift-tax-free amount (presently $15,000).
  4. Just about everyone in this category will write a check to their church or favorite charity from time to time.

There it is:

  • End of life to (1) heirs and (2) charity;
  • During life to (3) heirs and (4) charity.

Most of the so-called “1 percent” are in level two, having more than enough money to live comfortably for life but not so much as to be in a position to give large amounts to build college classrooms, fund hospital wings, or contribute to some other significant work that will be named after their family.

Still, I find that it makes sense for level two wealth to be more intentional about lifetime giving, perhaps helping family members during their lives when they need it or making larger gifts to church or charities of importance sooner than end of life. Maybe family and charitable causes can use the money now, and, most importantly, generous donors can see the result of the gift in action!

The wealth adviser and legal team you select should be able to help you develop a thoughtful giving strategy that makes sense and won’t impair your financial means during your lifetime. This team should be a “standing committee” that works for you on a continuous basis and could include your attorney (possibly a tax and estate specialist, too), your CPA, a life insurance professional, a valuation expert (if you own a private business), a trust department team, and your wealth adviser. And perhaps others as well, depending on your needs.

This planning should be carefully considered, and a written lifetime spending and wealth-transfer plan should be developed and rewritten as new factors, circumstances, and causes emerge or evolve.