It’s a common dilemma that many seniors face. You’ve spent a lifetime accumulating assets, and you may even have more than you need to live comfortably. At the same time, your children and grandchildren may be struggling with things like paying for education, starting a business or buying their first home. Perhaps you should give them their inheritance now rather than after you die?
This is a common question that comes up for not only the person leaving the money, but also their heirs. That’s especially true if the heirs know the inheritance is coming anyway. They may feel as if it’s an asset that they already have but can’t access. That sentiment could lead to hard feelings.
It’s important to think about your position on an early inheritance even if you don’t plan on going through with it. By thinking it over, you can provide an informed explanation if the topic comes up. That can help eliminate any resentment, and it can help your heir find other ways to overcome their challenges.
Of course, in considering an early inheritance, you may also find that it’s a good idea. You may come to the realization that you would prefer to help your family now instead of after your death. That’s a perfectly reasonable strategy, assuming you’ve considered all the factors involved.
Below are a few benefits and important considerations associated with an early inheritance. Think them over before you start giving money away.
Why an Early Inheritance Could Make Sense
You get to see your family put your funds to use. One of the primary reasons for leaving an inheritance is being able to help your loved ones reach their goals. Of course, you don’t get to see them do so, because they receive the funds after you pass away.
By giving an early inheritance, you get to watch them use your funds, and you get to see directly how the inheritance improves their life. That’s an invaluable experience, and it may justify your desire to give away money while you’re alive.
You want to minimize probate costs. After you pass away, your estate may have to go through a legal process called probate. This is a court process for settling all debts, identifying assets and distributing those assets to heirs. It can be a lengthy process, and it can lead to substantial administrative costs.
However, by giving away assets while you’re alive, you avoid putting those assets through probate. They’re out of your estate by the time you pass away, so they aren’t exposed to the probate process. That could reduce the duration of probate and minimize expenses.
You are concerned about how the heir will use the money. Maybe you have an heir who has special needs or is a spendthrift, or even an heir who has struggled with substance abuse. You may be concerned with how they will handle the inheritance.
You could initiate the inheritance while you’re alive so you have more control over its distribution. For instance, you could transfer their inheritance to a trust that limits distributions. By starting this process while you’re alive, you can make sure a management system is in place and have confidence that your heir is in good hands.
Why an Early Inheritance May Not Make Sense
You might need the money later. According to the U.S. Department of Health and Human Services, the average 65-year-old has a 70 percent chance of needing long-term care in their lifetime.1 As you may know, long-term care can be costly, and if you don’t have long-term care insurance, you may have to cover it out of pocket.
Before you start giving away assets, make sure you have other resources available to cover long-term care or any other unexpected costs. If you don’t have those resources, an early inheritance may not be a wise idea.
You’re worried the gift will cause family tension.
Family and money are often a problematic combination. There could be any number of factors that could trigger a family dispute over an early inheritance.
One child may suspect favoritism on your part. Or the recipient’s siblings may worry that you weren’t thinking clearly when you made the gift. It’s possible that if you’ve helped a child in the past, the other kids may feel that he or she shouldn’t get a gift. Families can be complex, especially when money is at stake.
Before you initiate the gift, think about the impact it will have on your relationships and how your family gets along with one another. If it could cause problems, you may want to rethink it.
Not sure whether an early inheritance is right for you? Let’s discuss it. Contact us at Foote Financial Group. We welcome the opportunity to consult with you on your objectives and needs. Let’s connect soon.
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