When it comes to gifting and giving money, especially to family members, people are oftentimes confused on when is the right time to pass over their inheritance. Should an inheritance be strictly given after one’s death? Should it be used while one is still alive? Let’s take a look at some of these questions.
Of course, every family is different, in terms of how they want to be remembered, but there are some things that every family should think about when passing on wealth. Many articles recently have been stating that individuals believe they will need an inheritance to maintain their level of wealth and living when they grow older. A Merrill Edge survey revealed that “a third of “mass affluent” Americans from Gen Z to baby boomers with investible assets of at most $250,000 are waiting on inheritances to achieve financial stability.” It’s interesting to see that so many individuals are relying on such wealth as part of their financial future. With our ever changing economy and sky-rocketing inflation, It will be interesting to see how the current market conditions impact the ability for individuals to continue to pass down wealth. Next, let’s take a look at when family members should think about passing down their inheritance to their heirs.
Give Now or Later?
Giving now rather than later is the preferred approach for many financially comfortable people these days. According to a 2019 Merrill study, Leaving a Legacy: A Lasting Gift to Loved Ones, 65% of Americans 55 and older say it’s better to pass on at least part of their estate while they are still alive.
While every family person has a different financial situation and circumstance, if deciding whether to gift your money earlier or later, here are some questions to ask yourself.
Are You Over-Giving?
Before you give to your children or family members, make sure you are not sacrificing your own personal financial situation. Oftentimes, family members give too much to their children and don’t save enough for their own lifetime.
Some of your children may prefer to wait for their inheritance, while others could benefit greatly from having the assets today. Before making that decision, make sure to communicate with your family members to make sure everyone is comfortable with the situation at hand. Check out our podcast episode with David Pearl discussing money and financial traditions, explaining how to pass down money values and concepts.
Where the U.S Tax Code Comes In
For those who are interested in contributing to the education of heir children or grandchildren, 529 plans may be a great place to start. 529 plans allows you to slowly contribute and save for your children’s education that they can use later in life. For the 2023 tax year, remember you can give up to $17,000 as a single filer and $34,000 as a married couple tax-free without it going against your gift exemption,
While this situation varies from person to person, it’s important to plan out your inheritance and set a will in place so that your hard-earned money is shared amongst your loved ones. Planning early and asking yourself these questions is a great strategy to help you make the right decisions when it comes to your inheritance. If you have any questions about your personal financial situation and what makes the most sense for you and your family, please email us at info@shermanwealth.com.
