Apr 23 2014, 11:19am CDT | by Forbes
Your financial legacy is a reward for a lifetime of hard work and financial success. Many affluent Americans want to give their children money, but aren’t sure about whether to make a living gift or leave money in their estate. This leads to the question: Should I give my children money now or later?
Robert: One of the benefits of making gifts during your lifetime is that you can help your children with important milestones like the purchase of a house, car, or a college education. You also get to enjoy seeing the impact your gift has on the life of your loved ones.
Thomas: There are also some practical advantages to living gifts. If you are concerned about your children’s financial skills, you can control how your money is spent. Payments made directly to a qualified educational institution may be tax deductible, making funding an education a potentially tax-savvy move.
Robert: On the other hand, if you’re worried about running out of money during your lifetime, you may be better off leaving your children an inheritance. It’s important to understand the tax implications of giving cash or assets to your children. Under 2014 tax rules, you are allowed to gift as much as $5.34 million to someone other than your spouse without incurring taxes. However, this exclusion amount will also be applied to your estate.
Thomas: Keep in mind that you can also gift up to $14,000 per person in 2014 without adding to your lifetime exclusion amount. This means that, jointly, you and your spouse could give each of your children a total of $28,000 completely tax-free. A financial advisor can help you understand the financial and tax implications of monetary gifts.
Robert: If you’re concerned about how your children may spend your money after you’re gone, you can set up a trust in order to control how the money is invested and disbursed to them. Unlike custodial accounts, trusts don’t ever need to be handed over to the control of the beneficiaries.
Thomas: Trusts are a great way to help ensure that your wishes are followed after your death, but I often caution my clients against trying to exert too much control from beyond the grave. Life is full of unforeseen events and you don’t want your children to suffer financially because of decisions you made long before.
Conclusions: Ultimately, the decision about whether to leave your children money now or later depends entirely on your financial and family circumstances. If you want to enjoy seeing your hard work benefit your children, then gifts during your lifetime make sense. If you’d rather keep your money until you no longer need it, leaving money in your estate may be a smarter option. One of the benefits of working with a financial advisor is that we can help you design a plan to meet your current financial needs while leaving an enduring legacy for tomorrow.
Securities and advisory services offered through SII Investments, Inc., member FINRA, SIPC and a Registered Investment Advisor. Fross and Fross Wealth Management and SII Investments, Inc. are separate companies. SII does not provide tax or legal advice.
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