I read an article recently where it said it’s becoming more prevalent for parents, grandparents,and even aunts and uncles to give they children, grandchildren, and nieces and nephews part of an inheritance while living.
Is this something new? I don’t know anybody where this has happened to them and I know for sure this is not something that will happen to me. It actually makes a lot of sense after reading the article- especially about investing the money. These people who give the money know who the money is going to and it makes no sense to sit on the money and it makes more sense to give some of it now so it can be invested so it could grow more interest and for it to be used for trips, etc. so these people could see the joy that the money had provided to others.
Makes sense, however, many people are living longer, much longer than they ever anticipated.
Care facilities, can also be much more expensive than anticipated as well.
A friends mother in law for instance, is mobile, she is in a facility mainly because she is at risk for falling.
She shares a room with four others, and this is about $4,000 month.
If you want your own place with caregivers that come to you, that is much more expensive.
We were very fortunate that a relative helped gift us with some money that we used for private school and private U tuition for our kids. It helped us avoid needing loans and allowed the kids to concentrate on their studies. A friend’s family had their inlaws pay for family gatherings–cruising Alaska, Grand Canyon and several others, creating invaluable memories before Alzheimers took away the MIL’s memories totally. It created close bonds among the kids but very little was left for estate distribution.
We have loaned our S a significant sum of $ for his inventory of his business, as well as to maximally fund his solo 401K. If he pays us back, we will invest the money for him. If he doesn’t, it’s part of the assets we would have left him. He has better use of the money and is able to get a better return, plus it keeps us from getting into a higher tax bracket.
Wow HImom!! You are a very very nice parent!! I am sure your son is very grateful for your contributions.
That’s exactly what I was thinking- as far as the tax bracket. You will be saving some money in the process.
Plus, since you can only invest up to $5,500 in a Roth IRA, if you gift that money to somebody you would leave it to in a will, it’s basically double invested.
If nothing else, I consider the money that we paid for them for private school from first grade through college as part of their inheritance. They will graduate with no debt, and I think that they are finally realizing what a gift that was, indeed.
Are you the kid or adult in this scenario? It’s a nice thought when it comes, unbidden, from the older generation, and a not-so-nice thought when it comes from the would-be recipient.
It only makes sense (to me) that gifts are given if the giver is SURE that they won’t need the assets for their own needs. If they give and then end up short of aassets for their own care, long after the money has been spent, that makes it difficult & awkward for everyone involved. WIth long lifetimes, it can be hard to predict how much folks will need, especially if they have or develop a chronic health condition that requires some or full-time caregiving.
We are trying to be cautious and prudent in our gifts, giving what we feel can be wisely used but not so that it saps drive to earn their own livings. I really want them to save well for retirement, so am happy to help fund toward that. Wish D had a job, so I could contribute toward her retirement account. Hope the docs are able to get her to have enough stamina to be a reliable employee–that has been an issue for the past 15 years–very limited stamina.
I would be irked if any of my kids (or anyone else) asked me for “an early inheritance.” That would leave a very bad taste in my mouth and make me feel much LESS generously inclined toward them. We have urged my folks to spend all their assets on themselves and not worry about leaving anything for any of us, as we’re all doing just fine.
We have considered giving money now instead of letting our son inherit it later- we can give to relatives as well (if they will take the money). There is no gift tax currently on $14,000 per person given by one person- ie a couple could give one person $ 28,000 per year. However, in reading the “fine print” I think it comes out of the 5 (?) million not taxed by the federal government when it comes time for heirs to pay estate taxes. Of course, this is for the wealthy, not those who think they have enough but could run out of money.
I think it is a great idea if there are sufficient funds for any eventuality- such as health care, living to 100, and needing a nursing home. Younger relatives can usually use the money for mortgages and educating their children now, not when you finally die. Our son is saving a lot of his income- being frugal (like his parents, why we have the money to consider giving away) so he has no need for it now. I wish my family would have let us help with college educations, sigh…
I plan to help my kids buy a place where they decide to settle. We hope it’s HI, but wherever works for them is fine with us. One advantage of waiting until it’s actually inherited is that the basis will be stepped up and the heirs don’t have to pay capital gains taxes, but it is nice to give when it’s most appreciated and you can see it being used productively.
We have done, and continue to do, this. We are in the very fortunate position of having the financial situation for ourselves well-covered, many times over, so we have been able to assist some of our Ds with home purchases, car purchases, paying off student loans for one son-in-law, helping pay for a great preschool for our granddaughter, and each year we take a family trip with the entire family. None of our Ds graduated with student debt. We are happy to be able to do this and assist when the need is greatest and when we can have the enjoyment of making things a bit easier for all of them. We struggled financially for many years when we were first married and in grad/law school, and there is nothing fun about it. All of our girls have very good jobs and work hard but it’s unlikely that any of them will end up in a financial position that is similar to the one we have.
Not quite understanding this. Annual gift of $14,000 does not count against the life time limit of $5 million+. You can give $14K annually and leave $5M at death tax free.
The step-up basis used to be the biggest argument against leaving it while alive. If the law changes not to allow step up, many people may leave sooner. I think kids should make it on their own first. They already got a lot of support from parents’ stable finances. It should be satisfying to compete against others without further advantage.
^^you think correctly. You can give $14k ($28k for a married couple) to as many individuals as you want without it affecting the lifetime exclusion (which is a little over $5 million now).
My kids never ask us for money…NEVER. It is the main reason we are generous in our gifts to them.
My parents had very little in “potential inheritance” money. We urged them to spend their money on themselves. We wanted THEM to enjoy life. They worked hard to do so.
Wish D had a job, so I could contribute toward her retirement account. Hope the docs are able to get her to have enough stamina to be a reliable employee–that has been an issue for the past 15 years–very limited stamina.