Many young adults and couples with minor-aged children may struggle for years to make ends meet. A job loss coupled with debt and varied monthly expenses often result in many Americans living paycheck to paycheck. When possible, some retired parents opt to help a struggling child financially. While traditionally most individuals waited until their passing to bequeath an inheritance upon their children, today many Americans are opting to pass on considerable wealth to grown children and grandchildren while they are still alive.
Many individuals opting to provide heirs and beneficiaries with an early inheritance are doing out of necessity and because they can. There are also other benefits as well as drawbacks to providing heirs with an early inheritance.
Providing an inheritance while still alive affords a parent or grandparent the satisfaction of knowing the money is going where it is needed. Oftentimes early inheritances fund big-ticket items that would otherwise place a great financial strain on an individual or family such as a down payment on a home or college education. In addition there may be tax benefits to early giving as individuals may be able to ultimately retain more wealth by avoiding hefty estate taxes.
While early giving makes sense for some individuals, it can be a disaster for others. Individuals who give too much too soon may in turn run out of money later on in life. An individual who starts giving away considerable amounts of wealth at age 65 may plan to live for another 20 years. What happens, however, if that individual lives 30 years? Will he or she have the funds needed to pay for the medical and nursing care likely needed for a person of that age?
When considering estate planning matters, it’s always a good idea to consult with a financial and legal professional. A tax attorney can provide advice and help individuals weigh the pros and cons associated with giving now vs. later.
Source: The Week, “Should you give your kids their inheritance before you die?,” Libby Kane, Aug. 21, 2013