You’ve worked hard your entire life to build a legacy, accumulate assets and grow your estate. Your intention may be to pass that legacy on to your children after you and your spouse pass away. However, if you’re like many retirees, you may be considering a challenging question: Why not give your kids their inheritance now?
At first glance, an early inheritance may seem like a no-brainer. After all, your kids and grandchildren may need that money. They could use it to pay for education, get out of debt, buy a home or even expand their business. By the time you pass away, your kids may be more financially established and the inheritance could have less impact.
However, there are a few reasons why an early inheritance may not be a good idea. Below are a few pros and cons of giving an early inheritance. If you’re considering making a gift while you’re alive, be sure to consider the impact it could have on your finances and your relationship with your family. Below are a few important items to think about:
Why an Early Inheritance Might Be a Good Idea
You get to see your family use the money.
The most obvious reason for giving an early inheritance is that you get to see your family put the assets to use. You get to see how they use the funds and how the inheritance improves their lives. That could prove to be a personally rewarding experience.
You minimize probate costs.
After you pass away, your assets may go through a legal process called probate. During probate, the court and your executor work to settle the estate. This can include paying debts, filing a final tax return, liquidating assets and more. Probate can delay asset distribution, and it can drive up administrative expenses.
Assets that have beneficiary designations, such as life insurance, annuities, trusts and qualified retirement plans, avoid probate. The same is true of assets with a title of joint ownership.
Assets that have been previously gifted may also avoid probate, since they are no longer part of your estate. By giving an early inheritance, you reduce the impact of probate costs on your legacy.
Reasons Why an Early Inheritance May Not Be a Good Option
You may need those funds later.
As much as you may enjoy seeing your loved ones put their inheritance to use, you may regret the decision if you need those funds later in life. One potential challenge that could arise is the need for long-term care. According to the U.S. Department of Health and Human Services, 70 percent of today’s 65-year-olds will need long-term care at some point.1
Depending on the type of care you require, you may face costs of thousands of dollars per month, and you may need that care for several years. If you’ve given away much of your money, you may lack the funds needed to pay for your care. Don’t consider an early inheritance unless you have plenty of assets left to fall back on in case of an emergency.
The gift could cause family disputes.
Do you feel that some individuals may take issue with their inheritance or their share of the estate? Could those hard feelings lead to a family dispute? If so, you may not want to experience that kind of drama during the final years of your life. Instead, it may be better to wait until after you pass away to release your asset distribution plans. Think carefully about how all your heirs will respond to their inheritance.
Thinking of giving early inheritances to your heirs? Let’s discuss it and make sure it’s the right path for you. Contact us at Coventry Financial. We can analyze your goals and needs and present your strategy options. Let’s connect soon.
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