When is the best time to pass money down to your children? Should you begin gifting money now or wait until after your death?
Well, the answer has much to do with your own personal and family circumstances. However, more and more people are discovering the benefits of giving inheritance money to their heirs while they are alive, rather than in a will. By doing so, you have the potential to create a more fulfilling retirement while also benefiting the lives of your descendants.
But, before you start doling out your kids’ inheritance money, consider whether or not this strategy is right for you. You can also speak to one of our fee-only advisors if you’d like more insight into your unique situation.
Why should you consider gifting inheritance money?
When you gift money now, you are able to watch your children benefit from it immediately. For many, seeing their children succeed because of a monetary gift they have given is extremely rewarding – much more so than leaving money to their children in a will.
Additionally, by gifting money while you are alive, you are able to help your children and grandchildren in real-time. Perhaps they need funds to help pay off student loans, buy a home, or start a retirement account. Receiving a monetary gift from you now, when they need it most, may be more life-changing than receiving it in 10 or 20 years.
Finally, if you have a large estate and expect to pay tax on it, gift-giving can be a great way to minimize the tax burden you pass on to your kids.
Does gift-giving align with your financial goals?
You must never compromise your retirement plan in order to gift money to heirs. Too often, retirees unintentionally reduce their standard of living by giving financial gifts to their children.
So, before gifting money to your children, sit down with your financial advisor and ensure that your funds are more than sufficient to last throughout retirement. Together you can develop a strategy for passing wealth to the next generation. This will likely include a plan for gift-giving that will help you stay on track with your financial goals while also increasing both you and your family’s quality of life.
Strategies for giving
Some parents fear that if they give money to their heirs now, their kids will begin to expect monetary help from them on a more consistent basis. In order to avoid this, be candid with your children about the purpose of the gift and set expectations for what future gifts may (or may not) look like.
Often, giving money for a specific purpose will also help you avoid this. You may choose to gift money exclusively for education or other large expenses such as home-buying, a car, etc. Additionally, you could consider gifting money in the form of a retirement fund or college savings fund. By doing this, you not only help your children/grandchildren get a jumpstart in a specific area of their life, but you also set a clear boundary that this gift is not recurring.
That said, it is also perfectly acceptable to give a monetary gift with no strings attached. In fact, many parents prefer to let their children decide what to do with the money they give. This is another great option for gift-giving; however, be sure to set clear expectations so that you don’t become your child’s bank.
In the end, deciding when you should pass money down to your heirs depends entirely on your individual and family circumstances. If you determine that this strategy is right for you, then gifting money while you are alive can be a fulfilling way to positively impact the lives of your children and grandchildren.
At TrueNorth Wealth, we are fee-only financial advisors who specialize in creating retirement and legacy plans that cater to your specific needs. Together, we will help you create a gift-giving strategy that aligns with your personal financial goals.