Thursday, July 8, 2021

Is It Worth Getting Your Foot In The Door By Giving An Early Inheritance?

 According to a recent study, nearly two-thirds of people over the age of fifty would prefer to pass their assets to their children before their deaths. As well as helping the loved ones in question to manage their financial affairs, this can significantly reduce or avoid high inheritance and estate tax later on which, when paired with a reliable life insurance policy, can ensure that a difficult time is far easier to deal with.

All of that said, early inheritance can be tricky to get right and, if you aren’t careful, it could create more financial trouble for your loved ones, and you, than you’d face if your simply waited. Here, we consider what exactly a ‘successful’ early inheritance plan should look like.

Step 1 - Take care of your retirement first

When you die, all of your money and assets go into probate. When you’re still living, it can be incredibly difficult to work out how much you can comfortably give while still ensuring your comfort. Fail to tackle this, and your kids are going to have to spend their inheritance bailing you out, ultimately meaning that they’ll get less than they would. To tackle this, always be realistic, and make sure never to risk your retirement pot, even if that means that you can only give half or even less of the amount that you had planned. 

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Step 2 - Think about taxes

The high and often complicated taxes on a traditional inheritance mean that many people have to turn to probate loans simply so that they can afford to execute a will according to the wishes of the deceased. While not a way to avoid taxes altogether, an early inheritance can help with this by legally turning ‘inheritance’ into a gift. This is beneficial because you can gift up to $13,000 per year before it becomes taxable. Equally, it’s possible to keep this money tax-free if it’s used directly for educational or medical purposes (which we’ll discuss a little more in a second.) As such, it’s vital to consider how much you’re giving, when you’re giving it, and why.

Step 3 - Ensure the longevity of your gifts

Given that it has to last a lot longer than a traditional inheritance, early inheritance is also almost always best implemented through gifts that keep on giving, such as education, medical purposes, property, or even business investments. That way, you can rest easy not only that your early inheritance has made a difference during your life, but also that your children will continue to enjoy financial security off the back of these efforts when you aren’t around to make sure of it.

Early inheritance can seem daunting, but as it becomes more of a norm, the legality and benefits of this decision are guaranteed to come ever-more to the fore. If you think an early inheritance would be of more benefit to your family, you certainly shouldn’t hesitate to take this step for either some or all of the inheritance you intend to give later on anyway

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