Is “Early Inheritance” A Good Estate Planning Strategy?
Estate planning lawyers and financial planners may have given you the counterintuitive advice of spending or giving away as much of your assets as you can while you are alive. Yes, you need to save enough to provide for your own needs in your old age, but what do you do if you could afford to live lavishly and pay for years of your own medical care needs and still have plenty of money left over? Yes, you can convert as much of your wealth as possible to non-probate assets, but that does not address the real issue. What good does it do anyone if your children inherit your money after your estate settles? Isn’t it better if you give your children their inheritance money while you are alive? The short answer is it depends. A Washington DC estate planning lawyer can help you decide how best to help your children in the short term and the long term.
The Benefits of Giving Your Kids Money Sooner Rather Than Later
The concept of giving your children an early inheritance has grown in popularity in recent years. Your children will not have to pay estate taxes on gifts they receive from their living parents (although they may need to pay gift taxes, depending on the amounts you give). Even better, you get to see your children enjoy the financial stability that the money brings them; instead of spending your life wondering how your children will use their family wealth, you get to see it with your own eyes. Your generosity can strengthen family ties; if you give your children money to pay for your grandchildren’s education, you can be sure that your grandchildren know that you care about them, even though you might not see eye-to-eye on everything.
How Giving Your Children Their Inheritance Early Can Backfire
Early inheritance is not a miracle cure for family discord or for your children’s financial problems; in fact, it can even make these problems worse. If you give your children their inheritance money now, and they spend it in ways you don’t approve of, it can cause much more conflict than if they had gotten the money after probate. Just talking about early inheritance with your kids can lead to family disharmony; if your children are too eager to receive it, you might feel like they are just using you for your money. Worst of all, if your kids spend the money unwisely, and you don’t have any left for yourself or for them, then everyone loses. A better compromise solution is to give your children cash gifts in amounts that are within the limits of the annual gift tax exclusion (less than $15,000 in 2021) and save at least some of your money for the future.
Contact Us Today for Help
An estate planning lawyer can help you be generous without letting your emotions get in the way of your ability to see the big picture. Contact Tobin, O’Connor & Ewing for help today.