If you’re thinking about giving your children their inheritance early, you’re not alone. Studies suggest these days, nearly two-thirds of people over the age of 50 would instead pass their assets to the children early than make them wait until the will is read. It can be especially satisfying to fund our children’s dreams while we’re alive to enjoy them, and there’s no real financial penalty if you structure the arrangement correctly. Here are four essential factors to consider when planning to give an early inheritance.
Remember the tax codes.
The IRS doesn’t care whether you give away your money now or later—the lifetime estate tax exemption is expected to be $11.18 million per person in 2018, regardless of when the funds are transferred. So, whether you give up to $11.18 million away now or wait until you die with that amount, your estate will owe no federal estate tax (although remember, the law is always subject to change). You can even give up to $15,000 per person (child, grandchild, or anyone else) per year with no gift tax issues. You might hear these $15,000 gifts called “annual exclusion” gifts. There are also ways to make tax-free gifts for educational expenses or medical care, but special rules apply to these gifts. Your estate planner can help you navigate the maze of tax issues to make sure you and your children receive the most significant benefit from your giving.
Gifts that keep on giving.
One way to make your children’s inheritance go even farther is to give it as an appreciable asset. For example, helping one of your children buy a home could increase the value of your gift considerably as the house appreciates. Likewise, if you have stock in a company likely to prosper, gifting some of the stock to your children could cause greater wealth for them.
One size does not fit all.
Don’t feel pressured to follow the same path for all your children in the name of equal treatment. One of your children might prefer to wait to receive her inheritance, while another might need the money now to start a business. Give yourself the latitude to do what is best for each child individually; be willing to communicate your reasoning to the family to cut the possibility of misunderstanding or resentment.
Don’t touch your retirement.
If the immediate need is great for one or more of your children, resist the urge to tap into your retirement accounts to help them out. Make sure your future is secure before investing in theirs. It may sound selfish in the short term, but it’s better than possibly having to lean on your kids for financial help later when your retirement is depleted.
Giving your kids an early inheritance is not only possible, but it also can be highly fulfilling and rewarding for all involved. However, best to engage a trusted financial advisor and an experienced estate planning attorney to help you navigate tax issues and come up with the best strategy for transferring your assets. Call us today to discuss your options.
NOTICE: The information on this website does not constitute legal advice and you should not rely on any information without seeking the advice of a competent attorney licensed to practice in your jurisdiction. This web site is both a communication and/or solicitation as defined by California Rules of Professional Conduct, rule 1-400. For further information, please click here.