The “living inheritance” is a growing trend in estate planning, particularly among baby boomers. It allows you to contribute to children’s and grandchildren’s needs – such as student loan debt or mortgage down payment – by passing along part or all of their intended inheritance while you are still alive.
Consider the following before deciding to give your kids an early inheritance.
How Much is Too Much?
Squandering an inheritance is an all too common story. A living inheritance can act as a “test run” for how your children or grandchildren may manage their inheritance responsibly in the future. You could give a small amount now to see how they handle a portion of your wealth. Will they spend it all or invest wisely? Based on their choices, you can revisit your estate plan and make changes as necessary.
Giving Now Without Sacrificing Retirement
Making sure you have enough money saved for retirement is a top priority. While you may want to give money to your children or grandchildren now, if you sacrifice your retirement savings, your children may end up paying for it in the long run. If you want to give your children a living inheritance, consult with your financial advisor to ensure you protect your retirement.
Tax Implications for a Living Inheritance
The lifetime gift tax exemption for 2017 is $5.49 million (or $10.98 million for married couples). This lifetime gift tax exemption amount applies whether you give your money away now or later. However, you can give up to $14,000 (or $28,000 for a married couple) to as many individuals as you wish each year without incurring any gift tax liability.
Family Dynamics of Giving an Early Inheritance
Family dynamics are an important, but often overlooked, aspect of estate planning. If you have more than one child, giving an early inheritance to one over another may lead to family feuds. Consider discussing your plans to give an early inheritance with your children ahead of time. Keeping these communication lines open can help keep the peace.
Giving a living inheritance can be a great way to see the legacy you leave, but it may not be the right choice for every person. To learn more about a giving a living inheritance or creating your estate plan, contact a Fifth Third Bank financial advisor today.