One theme that we’ve seen develop over the last decade or so is that more people are giving some of their money away to their children while they are alive. While on the topside of the grass so to speak vs. just leaving it as an inheritance. I think it’s kind of a seismic shift in how people are starting to view passing down a legacy to their heirs.
Of course, the traditional model has been to just leave it to your heirs as an inheritance when you pass. There are a few benefits to giving your money away while alive.
The first one is that you get to see your heirs enjoy it and benefit from it while you are alive. This can bring a great deal of satisfaction and joy. It can be very rewarding, ultimately, leading to potentially greater fulfillment in your retirement years.
You can watch your heirs purchase a home with that additional money, or help send your grandchildren to college. You can literally change their lives for the better right before your eyes. Certainly if your child is not as responsible with money as you’d like, then you may want to be a bit more careful with how you give them the money, but there are ways to do it responsibly such as only for education or purchase of a home.
The other advantage can be for tax reasons. If your Estate is large enough, you might have to worry about potential death taxes. And if that’s the case either now, or likely in the future as your assets grow, then strategically gifting small increments of money each year to your children or grandchildren now, while you’re alive, can be a way to chip away at reducing the value of your estate.
In 2023, each person can give away $17,000 a piece or $34,000 between you and your spouse each year without having to worry about paying gift taxes or keeping track of that for any reductions in your lifetime gifting limit. After a few years of doing that, you can reduce your net worth significantly while at the same time seeing your children enjoy that legacy.
You could even front load a 529 education plan for your grandkids by gifting 5- years’ worth of this $17,000 for singles, or $34,000 for married couples all at once.
That means a married couple could give away $170,000 all at once for a grandchild’s 529 plan. Not only do you not have to pay gift taxes, but you also benefit from reducing the estate value. You can see how if you have a few kids and grandkids, gifting while you’re alive each year is a very effective way to reduce the value of your taxable estate and give you the satisfaction of watching them take advantage of your generosity.
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