An inheritance is often the last gift you give to your kids—but it doesn’t have to be. Accelerated inheritance considerations serve to pass on a financial legacy to your children while you’re still alive, giving you an opportunity to offer guidance and support in how best to spend it. Here’s what you need to know about providing your children with an accelerated inheritance.
Can I Give My Kids an Accelerated Inheritance?
An accelerated inheritance simply refers to the inheritance you give to your beneficiaries during your lifetime. This means you can give your children either a portion or the entirety of their inheritance now and provide input on how best to use these assets.
Accelerated Inheritance: Considerations and Options
As a parent, there are several accelerated inheritance considerations to think through and discuss. For instance, you’ll need to find the right balance between providing a meaningful inheritance and keeping enough in your retirement savings for you and your spouse to live on.
To that end, you have several options at your disposal. Some of the most common ways to give your children an accelerated inheritance include:
Open a 529 Plan
A 529 savings plan is designed to cover educational expenses. If your children are nearing college age, a 529 plan can be an excellent way to handle inheritance considerations while also providing a means to go to school.
Only $18,000 per donor per beneficiary can qualify for tax exclusions, though you have the option to contribute five years’ worth of gifts as a lump sum without incurring taxes.
Give Appreciated Securities
One of your inheritance considerations is likely how giving money may impact your taxes. Giving cash can indeed trigger potential gift tax complications. But if you give appreciated securities, you can reduce the value of your taxable estate, as well as reduce your tax liability on capital gains.
Additionally, since your children are most likely in a lower tax bracket, they won’t pay as much in taxes if they sell the investment after receiving it. This makes appreciated securities a helpful option if you want to provide your kids an inheritance for a wedding gift, car, or down payment on a home.
Create an Irrevocable Trust
You can also effectively navigate inheritance considerations by creating an irrevocable trust. This way, you can leave specific guidance on how the money should be spent.
Doing so can provide your kids with valuable instruction as well as reduce your estate tax. And yes, you can structure the trust to provide payments to your children before you pass away to create an accelerated inheritance.
Invest in Experience
One of the most overlooked inheritance considerations involves the way your children remember you. Using money for a family vacation can create experiences to last a lifetime and establish a far more precious legacy than money alone could ever buy.
Gift Tax Inheritance Considerations
An accelerated inheritance can, of course, still take the form of cash. But you and your spouse may want to strategize to avoid paying gift tax. For 2024, the annual gift tax exclusion is $18,000 per recipient, or $34,000 for married couples.
This means that you and your spouse can give $34,000 to each of your children without needing to file a gift tax return. If you want to give more, you can spread the accelerated inheritance out over a number of years, which also helps you and your spouse retain enough to live on.
Navigating Inheritance Considerations With Confidence
By understanding these accelerated inheritance considerations, you can be better equipped to leave your children a legacy without compromising your own financial future.
At ATS Wealth Circle, we provide personalized guidance on how to manage your assets, both now and in the future.If you or someone you know would like to learn more about retirement strategies, or general financial planning, call (408) 333-9998 to schedule a meeting.
Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Investing involves risk and investors may incur a profit or a loss.
