Want to Give the Kids an Early Inheritance? 4 Things to Consider
If you’re thinking about giving your children an early inheritance, you’re not alone. A recent Merrill Lynch study suggests that these days, nearly two-thirds of people over the age of 50 would rather 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 for doing so, provided that you structure the arrangement correctly.
4 Factors to Take Into Account When Planning to Give an Early Inheritance
Keep the tax codes in mind.
The IRS doesn’t really care whether you give away your money now as part of an early inheritance, or later—the lifetime estate tax exemption as of 2017 is $5.49 million per individual, regardless of when the funds are transferred. So, whether you give up to $5.49 million away now or wait until you die with that amount, your estate will not owe any federal estate tax (although, remember, the law is always subject to change). You can even give up to $14,000 per person (child, grandchild, or anyone else) per year without any gift tax issues at all. You might hear these $14,000 gifts referred to as “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. Here at McDonald Law Firm, we can help you successfully navigate the maze of tax issues to ensure you and your children receive the greatest 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 home appreciates in value. Likewise, if you have stock in a company that is likely to prosper, gifting some of the stock to your children as an early inheritance could result in greater wealth for them in the future.
One size does not fit all.
Don’t feel pressured to follow the exact same path for all your children in the name of equal treatment. One of your children might actually prefer to wait to receive his/her inheritance, for example, while another might desire an early inheritance because he/she needs the money now to start a business. Give yourself the latitude to do what is best for each child individually; just be willing to communicate your reasoning to the family to reduce the possibility of misunderstanding or resentment.
Don’t touch your own 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 own 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 feasible, but it also can be highly fulfilling and rewarding for all involved. That said, it’s best to involve 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. Give Andre O. McDonald, a knowledgeable Howard County estate planning attorney, a call at (443) 741-1088 to discuss your options.
DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL ADVICE.