Financial planning isn't just for adults

Financial planning for your children may seem like a stretch. But not doing it can be just as dangerous as not planning when you are older and have issues and assets.

This should start as soon as you are ready to open any sort of financial account for a youngster. A common way to own savings for a minor is under the Uniform Gift to Minors Act (UGMA). Some states call it the Uniform Trust for Minors Act, or UTMA.

In both cases, assets are placed in an account for the benefit of minor children. There is a custodian who can decide how to invest the money and whether to use the assets for the maintenance and support of the minor or save them until that child reaches legal age to take custody themselves. Control cedes to the child at age 18 in UGMA states and 21 in UTMA states. This is my least favorite way to own assets for children simply because of the unsupervised access that the child legally obtains at either 18 or 21.

I don't know about you, but if someone had handed me a big pile of assets at age 18, it might have altered my behavior in college.

I recommend using a trust with stronger provisions than the "child takes all" at age 18. This fix may be critically important if the assets are valuable.

There's also the strategy regarding college savings. Look at 529 college plans. While many investors are unhappy with the performance that they've received for the last decade, a 529 still has many advantages.

The main advantage of a 529 plan is its tax-free nature if assets are used for college, a pretty good deal if you can invest and grow the money in the 529 plan.

Another advantage of a 529 plan is control. The owner of the account can be the person making the gift. A parent, grandparent or anyone else can establish a 529 plan for someone else. Unlike the UGMA, the assets stay in the control of the owner until the owner is willing to let them go to the beneficiary. If the funds come out of the plan and are not used for college expenses, taxes are due, as well as a 10 percent penalty on the gain.

The last point for your children is to be sure that they have certain legal documents in place when they are old enough to be considered adults. That means they should have a health-care proxy, durable power of attorney and maybe even a will or trust.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.Financial planning for your children may seem like a stretch. But not doing it can be just as dangerous as not planning when you are older and have issues and assets.

Sudden riches make rational thinking a must

Just over a week ago, many people were planning how to spend the $640 million lottery jackpot that they weren't going to win. While that brief respite from the day-to-day grind may have mental health benefits, it might not be the only way that a windfall of cash can find its way to you.

Every day, people run into sudden wealth - from inheritances, employment terminations, sales of businesses or sales of assets. There are two common themes for many of these people: Much of that wealth is gone within three years, and the windfall doesn't wind up increasing their overall happiness.

What should you do if a financial windfall lands on your doorstep? The first answer is to do nothing. Do not rush out to buy a boat, a car or some other material item that will depreciate right away. Use this event to look at the entire field of what you make and spend compared to the ideal life that you may have only dreamed of before.

There are two broad categories of sudden wealth that I'd like to address. The first deals with amounts large enough to change your life forever. If you have time to plan, get professional help in advance of the event. Attention should be given to the details of how to receive the assets and whether to keep them in their current form.

For example, if you are the outright beneficiary of a large retirement account, it may be in your best interest to receive this as a decedent IRA rollover, which may preserve the tax-deferred status. If there are business interests or rental real estate included in the windfall, think about how this asset may be protected from liability or lawsuit.

Determine if the amount is actually more than you may need to live your dream to the fullest. If the answer is yes, then perhaps you can think about the next generation, some other family member in need, or your favorite charity.

If the amount is not enough to change your life forever, then you need to evaluate your current circumstances. Is your priority beefing up your retirement accounts, paying down college loans or credit cards or establishing the rainy day fund that you need?

The choice is yours. You can spend it right away or you can make a wise money move, and at least partially solve what ails you financially.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.Financial planning for your children may seem like a stretch. But not doing it can be just as dangerous as not planning when you are older and have issues and assets.