Thinking of someone leaving an inheritance might invoke dramatic images of eager family members gathered around a lawyer’s desk, listening intently as bequests are slowly read aloud from a long document. While that may be how the process is portrayed in the movies, there are actually several different ways someone can leave their estate to their heirs. In some cases, the person may even decide passing an inheritance now rather than later is best.
Advantages to Passing Inheritance Early
For the giver, one of the primary benefits of bestowing their loved ones with their inheritances early is being able to see them enjoy the experience. For instance, if the gift allows a grandchild to travel to Europe, a grandparent can see pictures of all of the places he or she has visited. Likewise, an inheritance that provides financial relief to a hardworking relative can also be wonderful.
Provided the gift is not more than $15,000 per person per year, it will be tax-free. For married couples, each giver can give up to $15,000 per person. As long as you stay under the yearly limit, you can give up to $11.4 million to the recipient during your lifetime without gift tax implications.
You Can Pay Educational Expenses and Medical Costs
One way to pass an inheritance early is to pay a loved one’s educational expenses. The IRS allows for an educational exclusion when you pay another person’s tuition at a qualifying educational institution. Likewise, you can pay for a loved one’s qualifying medical expenses under the medical exclusion without the payment qualifying as a taxable gift. However, in both instances, it’s important to pay close attention to the rules, as not all associated expenses will be tax-exempt.
Disadvantages to Passing an Inheritance Early
One disadvantage to passing bequests early is that, depending on how you handle the transfer, you may end up relinquishing control over what your heirs do with their inheritances. If you are concerned that heirs will mismanage family assets or otherwise be reckless with their spending, you would most likely be better off placing the property into a trust and naming them as beneficiaries. The trust terms could limit how the trust payments are to be used and put the assets under the protection of a trustee. Another problem may be that by passing on your wealth too early, you may not have enough left for your own needs. It’s easy to get carried away when giving to friends and family, and it’s important to maintain boundaries during the process. Additionally, depending on the complexity of your estate, there may be certain tax and financial advantages that come with delaying inheritance.
Before deciding to distribute gifts to your heirs, you should talk with an experienced estate planning attorney who can help you examine your situation. At the Law Office of Alhayat Solicitors, we have the experience you need to prepare for every aspect of your estate plan. Schedule a consultation today.
