Now or Later: When’s the Right Time to Pass Your Legacy to Loved Ones?

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​You’ve worked in your career to accumulate assets, fund your retirement and perhaps even build a legacy to pass on to the next generation. As you enter retirement, you may be considering just how to leave an impactful legacy for your loved ones.
 
Traditionally, legacies are the types of things that are managed through an estate plan. Many people use trusts or wills to distribute assets to children or grandchildren. You don’t have to wait until you pass away to distribute assets to your kids and grandchildren, however. In fact, according to a study from Merrill Lynch, nearly 60 percent of those age 50 and older say they would prefer to give assets to loved ones today rather than in the future.1
 
You are allowed to give up to $15,000 per year to an individual without facing gift taxes. If you’re married, that exclusion amount is doubled, so as a couple you can gift as much as $30,000 without facing gift taxes. Also, gifts don’t count toward the exclusion if they’re used to pay for tuition or medical expenses.2

If there’s a chance your gift will exceed the exclusion amount, you may want to work with a tax and financial professional to develop a strategy. However, even if you aren’t going to hit the exclusion limit, you still may want to develop a strategy. It’s possible that your legacy may be best delivered after your death rather than as an early gift. Below are a few questions to consider:

Could your loved ones use the money now?
 
It’s possible that your children or grandchildren would be better served by receiving their inheritance now rather than in the future. For instance, maybe you have a grandchild heading to college who could use his or her inheritance for tuition. That gift may help them avoid student loans. Maybe you have a grown child facing financial difficulties, like unemployment or divorce. Or perhaps your children could simply use the windfall to pursue some big goals.
 
There’s also the added benefit of getting to see your gift put to good use while you’re alive. Although it may feel good to know that your family will receive a windfall after you pass away, you may find it more satisfying to see how they use that money while you are relatively young and healthy.

Is there a chance you’ll need it in the future?
 
Before you embark on a gifting or early inheritance strategy, consider the possibility that you may need the money in the future. Most people enter retirement with more assets than they’ve ever had. It’s easy to assume that those funds are more than you will need.
 
However, there are potential costs in retirement that may cause unexpected challenges. Fidelity estimates that the average couple will need to spend $280,000 on health care in retirement.3 The U.S. Department of Health and Human Services estimates that 70 percent of retirees will need long-term care, which can often cost thousands of dollars per month.4 If you haven’t addressed these risks, you may want to do so before you implement a gifting strategy.

Will the gifts cause conflict in the family?
 
Finally, think about what kind of issues your gifts could cause within the family. Have you provided financial help in the past to children or grandchildren? Will other children feel that the gift amount is unfair? Are there children or grandchildren who may not be able to handle the responsibility of a large windfall?
 
These are important questions to consider. You want your gift to have a positive impact, not create conflict and tension. If there are risks associated with your gift, you may want to consult with a financial professional to develop a strategy.
 
Ready to create your gifting plan? Let’s talk about it. Contact us today at Capital Management Group. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.
 
1https://www.ml.com/articles/why-make-your-heirs-wait.html
2https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
3https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
4https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
 
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18274 - 2018/11/27

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