You are not alone if you're considering giving your children an early inheritance. According to a new Merrill Lynch survey, almost two-thirds of people over the age of 50 would consider gifting money before death to their children before the will is read.
It's enriching to finance your children's aspirations when you're still around to see them accomplished, and there's no precise financial cost for doing so if the scheme is well structured. According to a trust attorney, there are four essential things to consider when it comes to arranging a living inheritance.
Keep The Tax Codes In Mind
The IRS doesn't mind if you opt for an early inheritance gift since the lifetime estate tax exemption is $5.45 million per person as of 2016, regardless of whether the assets are passed.
Your estate will not owe any federal estate tax if your inheritance distribution before or after death is $5.45 million now (do remember that the law is always subject to change). You can also donate up to $14,000 per person per year (child, grandchild, or someone else) without incurring any gift tax. Such $14,000 gifts are often referred to as "annual exclusion" gifts.
There are also options to allow tax-free donations for college or healthcare expenses, although there are certain restrictions. Your estate manager will assist you in navigating the complexity of tax problems so that you and your children reap the most from being gifting assets before death.
Gifts That Keep On Giving
Giving inheritance before death as an appreciable possession is one way to let things go even further. For example, assisting one of your children in purchasing a home could significantly increase the value of your gift as the home appreciates.
Similarly, if you own shares in a business that is likely to succeed, gifting any of it to your children could result in them having more money in the future.
One Size Does Not Fit All
Don't feel obligated to take the same course with all of your children in the interest of fairness. One of your children may choose to wait for their inheritance from parents, while another may need the funds right away to start a company. There is no best age to inherit money, so allow yourself to do what is suitable for each child individually. However, be ready and willing to explain your reasons to the family to avoid misunderstandings or anger.
Don’t Touch Your Retirement Funds
If one or more of your children are in desperate need of financial help, fight the temptation to dip into your savings funds to support them. Before you invest in their future, make sure your own is stable.
It may appear unfair in the short term, but it is preferable to rely on your children for financial assistance later in life if your retirement funds are exhausted. Giving your children an inheritance at a young age is not only possible, but it can also be very satisfying and beneficial for all parties involved.
Closing Thoughts
To help you manage tax problems and come up with the proper method for moving your properties, it's best to enlist the help of a reliable trust attorney who can assist you. Contact me today to learn more.
