Can I Give My Kids Their Inheritance Before I Die?
July 17, 2024
Most parents worry about providing for their children. One way to do this is through inheritance, but what if you could give our kids their inheritance before you pass? Drawing on years of experience in estate planning law, Attorney James E. Lewis takes a close look at early inheritance with practical tips and valuable insights into the benefits and pitfalls of passing the torch early so you can make informed decisions.
Understanding Early Inheritance
Early inheritance, or lifetime gifting, means giving assets to your children while you are alive. It lets you see them benefit from your generosity but has pros and cons that you must take into account.
You should consider factors such as taxes, potential mismanagement of assets, and how receiving an early inheritance might impact their motivation or lifestyle. Understanding all aspects of lifetime gifting can give you peace of mind and help prevent future conflicts.
Benefits of Early Inheritance
Early inheritance has several advantages, making it worth considering for many families.
Witnessing the Impact
A significant advantage of early inheritance is the joy of seeing your children benefit from your gifts. Whether it is helping them buy their first home, start a business, or pay off student loans, you get to witness the positive impact of your generosity firsthand.
Reducing Estate Taxes
Early gifting can reduce the size of your taxable estate, potentially lowering the estate taxes owed upon your passing. This can be a strategic move to preserve more wealth for your children.
Simplifying the Probate Process
Probate can be time-consuming and costly, so reducing the number of assets subject to probate can simplify the process, streamline probate administration, save on legal fees, and minimize family stress during a difficult time.
Providing Financial Education
Early inheritance gives you the opportunity to educate your children about wealth management. By giving assets while you are around to guide them, you can teach them valuable lessons on financial responsibility, investment strategies, and the importance of preserving family wealth.
Addressing Immediate Needs
An early inheritance can address any urgent financial needs your children may have. Whether it is unforeseen medical expenses, educational costs, or other emergencies, timely financial support can provide immediate relief and stability, giving your children a sense of security and well-being.
Drawbacks of Early Inheritance
Early inheritance also comes with several drawbacks that you should be aware of before making any decisions.
Financial Security Concerns
One significant concern with early inheritance is the risk to your financial security. Parting with substantial assets too soon may jeopardize your ability to cover future expenses, such as medical care or living costs. Without careful planning and consideration, unforeseen economic downturns or personal financial setbacks could further strain your resources.
Potential Family Conflicts
Early inheritance can lead to family conflicts, such as sibling rivalries or disagreements over the distribution of assets. These conflicts may be exacerbated if there is an unequal distribution of inheritance or if there is a perception of favoritism or unfairness in asset allocation.
Tax Implications
While early gifting may reduce estate taxes, it can have other tax implications. Depending on the size and type of gift, both you and your children may face income or gift taxes. You should consult with a tax professional to understand your tax obligations and to plan appropriately, as gift tax exclusions and income tax rates may depend on the value and nature of the assets transferred.
Practical Steps for Early Inheritance
These steps can make the early inheritance process smoother:
Assess Your Financial Situation
Evaluate your financial situation with a financial advisor to make sure you can part with assets without compromising on financial security. You will need a comprehensive understanding of your current assets, projected future expenses, and potential income sources to make well-informed decisions.
Create a Gifting Strategy
Decide which assets to gift, such as cash, stocks, or real estate, and determine the best timing for these gifts. A well-thought-out plan can help maximize the benefits of early inheritance. An estate planning professional and a tax advisor can help create a gifting strategy that is aligned with your financial and family goals and complies with laws and regulations.
Communicate with Your Children
Open communication with your children is necessary when considering early inheritance. Discuss your intentions, explain the reasons behind your decisions, and address any concerns they may have. This transparency can help prevent misunderstandings and conflicts.
Legal Considerations in Wisconsin
In Wisconsin, lifetime gifting and inheritance. are governed by specific laws and regulations.
Individuals can gift up to $15,000 per year per recipient without incurring gift taxes. Married couples can combine their gifts, allowing them to gift up to $30,000 per recipient annually. Keep detailed records of these gifts to avoid complications.
Wisconsin also has a property ownership system called “marital property”, wherein assets acquired during the marriage are owned equally by both spouses. Under this system, lifetime gifting may require spousal consent and could have implications in divorce proceedings.
Consult With an Estate Lawyer in Green Bay, Wisconsin
At Lewis & Van Sickle, LLC, we understand the importance of estate planning and the importance of securing your family's future. With over two decades of experience, Attorney James E. Lewis has been a strong advocate for his clients. If you're considering early inheritance or need assistance with estate planning in Green Bay, Wisconsin, Oconto, Shawano, Kewaunee, and Sturgeon Bay, call today to explore your options and secure your family's future.