If you’ve generated a significant amount of wealth during your lifetime, you might be starting to think about what will happen to it once you are gone. You could donate it to a worthy cause, or you could pass it down to your kids. But what if you want to go ahead and give them some of your wealth now, before you pass?
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With the Great Wealth Transfer underway, it’s expected that by 2045, roughly $84 trillion will be passed down from the silent generation and baby boomers to their kids. And a lot of this will be done as a living inheritance.
This huge transfer of wealth has caused a lot of debate about whether or not leaving your kids a living inheritance is a good idea. Keep reading as we look into some reasons why retired boomers should not leave their kids a living inheritance and a couple of reasons why they should.
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Why You Shouldn’t Leave Your Kids a Living Inheritance
Risking Your Own Financial Security
It’s common to want to see your kids succeed. This is true not only with their careers but also financially. Seeing them experience things like purchasing a home or traveling the world can give you self-gratification because you can witness and enjoy their success.
However, you also need to think about your own needs. If you plan to provide your kids with an inheritance while you’re still alive, it’s important to do so carefully. What happens if an unexpected expense pops up? Are you still going to have the funds available to continue living your current lifestyle?
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Family Resentment
If you have multiple children that you’re planning to leave an early inheritance for, you need to do so carefully. It’s easy to leave cash assets and know the distribution is even. But what if you’re planning to leave someone with a business or real estate?
These types of assets can have fluctuating values, and if one dependent receives something that becomes more valuable, it could cause tension within the family — not just between siblings but also between you and them.
Potential for Financial Irresponsibility
Let’s be honest with each other. Sometimes people make bad decisions with money. Lifestyle inflation is a real thing and can have some severe outcomes. When people come into additional money, whether it’s a raise at work or an inheritance, they feel more freedom. They want to go out and treat themselves to something they’ve wanted but couldn’t afford. And while this is OK to a certain extent, there must be some restraint.
Without the right amount of discipline, early inheritances given to people who might not be ready to manage larger sums of money could end up poorly. This is when it might make more sense to put the funds in a trust where you can have more control over how they’re used while you’re still living.
Why You Should Leave Your Kids a Living Inheritance
Potentially Reduce Estate Taxes
Depending on how you set up your estate plan, your assets may or may not go through what’s known as probate after you die. Not only can this be a lengthy process, but it can trigger estate taxes which will reduce the inheritance your kids can receive.
Instead, giving your kids a living inheritance can put you in control. You can strategically gift assets to each dependent, which will help reduce the estate taxes they might have to pay.
Help Your Kids Today
Earlier, it was mentioned that as parents, we want to see our kids succeed at whatever they do. Luckily, we have a lot of control over that. We can teach them the difference between right and wrong. We can save money so that if they want to go to college, they don’t have massive amounts of student loan debt hanging over their heads. Or we could simply help bail them out of a financial pinch.
Let’s be real, some younger generations, especially millennials, have dealt with their fair share of problems. As many in that generation started their careers, they dealt with the financial crisis. Many have watched from the sidelines as housing prices have skyrocketed to unaffordable levels and don’t forget living through a pandemic.
All of these things have contributed to some struggling to get ahead financially. However, leaving your kids with a living inheritance can not only help parents enjoy the wealth they’ve created but also help their kids find a little bit of breathing room financially.
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This article originally appeared on GOBankingRates.com: 3 Reasons Retired Boomers Shouldn’t Give Their Kids a Living Inheritance (And 2 Reasons They Should)
