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My mother-in-law cheerfully declares that she’s spending my wife’s inheritance on the grandkids.  This statement often comes as the children are dancing about in delirious excitement as she reveals the latest wonder hiding in the back of her blue minivan.  Being able to see first-hand a person’s enjoyment of their gift is a tremendous reward and one that can play into estate planning. 

Helping Your Children Pursue their Dreams

Clients often consider the effect their legacy will have on their children’s lives, and worry over how well their children will manage their inheritance.  The advantage of giving gifts now is you can observe how well the recipient handles the gift, but you also have the pleasure of investing in their future success. 

Tax laws, which in the past encouraged passing legacies through your estate are now more generous when it comes to lifetime giving.  Annually, you can give as much as $14,000 to an individual, and your spouse can match that to the same individual.  You also have a lifetime exclusion of $5.45 million in 2016. 

Now or Later: Three Important Questions

Being Fair

If you help one child out, what will the other children’s reaction be?  Will you want to extend the same assistance to all, even though one child is struggling financially, and needs the help to get through a rough patch, and the other children are doing well?  Or maybe your daughter is launching a startup and can really use some seed money now.  Either way set clear expectations about whether this is a gift or a “pre-inheritance” that will reduce a child’s share.

Gift or Responsibility

Some gifts have price tags attached.  If you’re handing over the reins of a business, for example, that has tremendous value… and a lot of responsibility.  A gift of real estate can also have its own price tags, for example, maintenance fees, property taxes, not to mention the negative tax treatment for real estate gifts.  Different assets have different tax treatments, and it can be to you and your recipients advantage to talk to a professional before making a large gift to find out what strategies are available. 

Creating a Burden

Being generous is good, but if you leave yourself without needed resources, you can unintentionally make yourself a burden on your family.  When weighing out how to help your family, don’t discount your own financial needs.

Source: Why Make Your Heirs Wait?