Giving to those we love can be a joyful experience, and that is especially true for most parents. Some people’s warmest memories probably include giving presents to their young children and sharing in the resulting happy reactions.
As you and your children grow older, you might not put as much work into the gift-selection process as you once did, but the care about giving still is powerful. If you are an elder adult, you may have started thinking about what you can do to help assure the financial security of your family after you are gone. For many older parents, this means leaving an inheritance.
In 2017, a Natixis U.S. Investor Survey found that 70 percent of millennial-aged Americans expect to receive some kind of inheritance eventually, while only 40 percent of their parents say they actually intend to leave one.
Additionally, a staggering 44 percent of Baby Boomers have not completed any kind of estate planning, which could make the inheritance question a moot point if their assets wind up in probate court.
If you are in the minority of older citizens who confidently plan to leave something for your children’s and grandchildren’s futures, you should consider starting right now – while you still are able to personally enjoy the giving process. Leaving an inheritance for your loved ones should not have to wait until you pass on, and with the right strategies, you can make those gifts even more beneficial by minimizing later tax liabilities.
For instance, as of 2019, you can give each of your children up to $15,000 without incurring any penalties or taxes. Larger monetary transfers typically are subject to a “gift tax,” but if you give less than the $15,000 threshold (per recipient) in any one year, you can do it tax-free. There is no limit to how many family members can each receive the gifted funds.
Inheritance taxes – sometimes called “death taxes” – have been a point of contention for generations of Americans. Changes to the applicable laws have been enacted several times in recent years, at both the federal and state levels, but the regulations still are a concern for countless individuals and families. At the same time, experienced estate planners have various ways to expedite the transfer of assets while minimizing tax repercussions.
Benefits of a pre-inheritance trust
One effective strategy is a pre-inheritance trust, which enables you to invest in a deferred asset-protection program for your eventual heirs. Once money is put into a pre-inheritance trust, it is no longer your property, meaning it will be automatically exempt from estate tax liability upon your passing. Better yet, it will keep accruing during the interim, so the assets even will have greater value when your inheritors take possession of them.
Also, the funds in a pre-inheritance trust are protected from your designated heirs while you still are alive. That is an issue for some parents who fear their children might be irresponsible if they get their inheritances at a young age. Assets in the trust only can be accessed by a trustee you assign, and only at a time pre-approved by you. Another potential advantage is that if your children ever are sued, courts are unable to come after those assets — your inheritors are simply beneficiaries of the trust and not yet owners of its undistributed contents.
The enjoyment of passing things on to your heirs can include much more than monetary gifts. If you intend to leave your children substantial items such as vehicles, real estate, family heirlooms, or other significant valuables, you can make legal arrangements to transfer ownership to them now while still averting tax penalties.
When transferred properly, pre-inheritance gifts can be optimized to bring the most happiness and financial advantages to your family. However, you must be able to assure that everything is executed legally, or else you may risk unexpected tax consequences for your inheritors later.
Let a qualified estate planning attorney guide you
The experienced elder law attorneys at TuckerAllen specialize in affordable smart solutions for wills, trusts, Power of Attorney documents, and other essential aspects of estate plans, including long-term provisions for special-needs adults.
TuckerAllen also offers complimentary educational webinars, where we explain a range of estate plan options and asset protection programs, all in terms that are easy to understand.