A living inheritance is giving your children all or part of their inheritance while you are still alive. More and more Baby Boomers are choosing to gift their wealth to their children and their grandchildren while they are still alive. But what are the benefits and drawbacks of a living inheritance – should you give your children a living inheritance? Here are some things to consider about living inheritances.
1. Tax Benefits
The annual gift tax exclusion for 2021 is $15,000. This means that someone can give $15,000 to any person in a calendar year ($30,000 for a married couple) without having to file a federal gift tax return and without it counting toward their lifetime exemption amount.
2. Shared Experiences
When you can gift your child a downpayment on a home, a family trip, a business investment or other experience you get to participate in their joy, something you would have missed out on if you’d waited for them to receive their inheritance after your death.
3. Is It Financially Advantage to Give Your Kids Their Inheritance Now?
There may be very good financial reasons to give your children their inheritance early, such as:
• reduce estate taxes
• reduce their financial burdens such as school debt or helping them invest in a home or business
• fund more shared experiences such as a family trip or a family vacation home
1. Loss Of Incentives
Some children who receive money too soon or too young lose their incentive to earn money themself.
2. Are You Financially Secure Now?
If you do not have the money you need to be comfortable today and in your retirement – and if that retirement lasts 30 years or more – what will happen to you? Are you prepared for rising healthcare costs? What will happen to your portfolio if you give your children their inheritance now and you lose your job, or the stock market crashes? Are you financially secure without that money?
3. Are There Alternatives?
Have you explored alternative options to provide income for your heirs while you are living that won’t risk your retirement years? A joint tenancy deed with rights of survivorship on a family vacation home or a TODI on real estate might provide them with financial security today.
A survey by The Royal Bank of Canada found that 61% of Baby Boomers plan to pass on money to their heirs during their lifetime. But it’s important not to give a living inheritance at the risk of your own financial future. An estate planning attorney can review your assets and your goals and help you create an estate plan that protects you loved ones and provides you with peace of mind.
If you are considering a living inheritance and planning how to distribute your estate and have questions about inheritance laws and gift taxes, an experienced estate planning lawyer can advise you throughout the process. To talk to a qualified attorney in Chicago or Lombard, contact the Estate & Probate Legal Group at 630-864-5835.