Check out our video on this topic here!
Should I gift the money to my kids now or should I make them wait until I’m gone?
This is a common question we get from clients and today I’m going to talk about 5 specific pros and cons of gifting money to your adult children vs. saving it to pass on as a form of inheritance.
To start here, giving while living is far from a new concept. We may not think of it in the light we’re currently speaking about but common examples of this could include a parent helping with the down payment on their child’s first home or paying for a wedding.
It could even include a grandparent taking the entire family on a vacation or paying a portion of their grandchild’s tuition.
1) Pro- Seeing your gift play out in real life
The situations above bring us to our first reason why you may want to consider gifting money to the next generation while you are here. By making gifts during your lifetime, you can see the fruits of your labor play out in real time.
Making gifts may bring you happiness and a feeling of fulfillment. Situations we’ve witnessed include helping the next generation pay down their student loans which could help them get a head start in the real world.
Another example may be helping with a payment towards a first home, especially with where home prices have been recently.
2) Pro- Sharing your values with your inheritors
Legacy is something we speak with clients about quite often as the next generation’s receipt and use of a sum of money can bring about uncertainties.
Uncertainties such as; is the money they receive protected, will they choose to reinvest the money, or hopefully, will they put it towards something that will make a positive impact on their lives.
Whatever the case may be, taking possession of unexpected sums of money can bring uncertainty at times.
And this brings us to our second reason why you may want to consider gifting money to the next generation while you are here to see it.
When you gift money, you might possibly have the opportunity to convey your wishes for your family legacy and what money means to you.
This discussion could act not only as a moment to bond and share gratitude, but also to help potentially guide the next generation to a decision you might deem to be responsible.
3) Pro- Tax Planning and Estate Planning
In branching off of the legacy conversation, we are often lead down a path of holistic planning reviews with clients.
You may have heard the quote, “it’s not about how much money you make. It’s about how much money you keep”.
Although not as often a main driver but certainly relevant to the conversation is our third reason why you may want to consider gifting money to the next generation.
Looking from a tax planning or estate planning review perspective, gifting can play a major role in passing down your legacy.
There are situations we come across where clients are looking to reduce their taxable estate over time or even reduce the complexity of the estate in which case, considering making gifts whether to heirs, or charitable causes, might make sense.
As always, we stress the importance of working with your accountant and attorney in conjunction with your financial advisor when having these discussions as we do not provide legal advice or tax advice.
Now let’s talk about some of the potential cons that may come about when passing on your legacy.
4) Con- Not Planning correctly
When gifting and passing on your legacy, it is important that you do so in a manner that is both beneficial to you and your heirs.
You may want to think about what a comfortable number might look like over time as not to put yourself in a position that could negatively impact your financial future.
5) Con- Situation turned out different than you planned
You also want to prepare your mind in the event things don’t go the way you had hoped for, which sometimes does happen.
We’ve witnessed on multiple occasions where money was gifted and relationships changed for one reason or another.
We all hope this is not the case, but it could be a possibility to be aware of.
The Final Word:
As mentioned earlier- we tend to see one overarching theme which we feel to be the most impactful question when making the decision:
Will it make you happy and fulfilled to see the impact of your gift while you are here to do so?
If you feel overwhelmingly positive when asking yourself that question- you may just have your answer. These questions are not ones that should be asked alone. Making sure you have an open line of communication with your trusted professionals and family can go a long way to bring you confidence in your plan.
Thanks for Reading!
- The Rockline Team
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.
Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The opinions expressed and material provided are for general information, and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.