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Gifting to your adult children a portion of their inheritances while you are still alive is a topic of discussion that is not always as simple or clear-cut as it may seem on the surface.
Some reasons you might consider doing this may be if you have more in your savings than you thought you would at this stage in life, you have made profitable investments, you do not have concerns over medical expenses, or even just want to see how your children might pursue their dreams and goals with some extra financial assistance.
One question that comes up sometimes from clients is whether this is “fair” – whether you decide to give to one child over another, or whether you tie a string to the money you give them by advising that it will be deducted from their future inheritance upon your death. Does this bring out sibling rivalries? Of course, it does. What potential problems might arise if you decide to be generous in this regard?
First off, your adult children may raise issues over whether you provide more to one over another, pay off one’s student loans, help another start a business, pay for outstanding medical expenses, buy a home, or some other reason. Would your children, regardless of need, make an issue over one child getting more than another, or if giving money to one child, does another think they are “entitled” to the same amount?
Your children may think this is indeed the case.
Are your children mature enough to handle money, particularly large sums? Will your children use the money you give them in a manner that you did not intend and will you regret giving the money to them earlier than upon your death?
Do you have sufficient money saved for your long-term medical care, particularly as you age? Even the basic expenses are expensive, and only getting more so.
That being said, for estate planning purposes, property within the annual gift exclusion may be gifted away to reduce the value of an individual’s taxable estate. For 2023, the annual exclusion is $17,000 per recipient. It is important to be mindful of this amount, as it can change annually. Generally speaking, it may be wise to gift unappreciated property during your lifetime while highly appreciated property can be left to your children and heirs on your death. That being said, the amounts and property which you wish to give should be a central part of your discussions with your trusted estate planning lawyer and or your tax professional.