How Should I Time an Inheritance?

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You can give an inheritance while you are living.

Timing can make a big difference.

A split second late on a baseball swing can leave you with a strike rather than a home run, yes?

Being born a few minutes before midnight on New Year’s Eve gives parents a tax break.

According to a recent Kiplinger article titled “Leaving an Inheritance? Is It Better to Give to Kids Now or Later?,” time an inheritance also impacts estate planning goals and current life plans.

The timing of an inheritance is key.
It is important to consider how your heirs will spend an inheritance.

Although many people desire to leave wealth to their children and grandchildren, this is not always possible.

There are many factors in play.

What are some of these considerations?

Long-term care costs can be challenging to estimate or predict accurately.

However, if you reach age 65, you have a 70 percent chance of needing some form of long-term care before death.

Question: what “level” of care will you need, and for how long?

Those are two wildcards.

If you fail to have a strategy beyond “hoping” you will be among the lucky 30 percent, then your children and grandchildren may inherit only you.

An excellent step in long-term care planning is to purchase long-term care insurance.

If you have enough for these costs and retirement expenses, you may be able to consider leaving an early inheritance to your loved ones.

Money can be either a blessing or a curse.

You must consider how your heirs have managed money in the past.

Did they spend it immediately as a means to show off to others?

Perhaps they invested or used it to pay important bills.

Do you want your gift to be wasted on a big ticket item without thought for the future?

It is important to consider the heir when choosing how to leave an inheritance.

You may consider a trust if you are uncertain how wisely your heirs will use their gifts.

A trust allows for greater control over the distribution to heirs and the use of assets.

Another consideration is the age of your heirs.

If you are 65 and your children are between 30 and 35, you will want to decide if you wish to gift them money now or later.

Would you prefer your children receive an inheritance when they are in their 30s or their 50s or 60s?

If they inherit in their 50s, they will likely be in their peak earning years with fewer expenses.

They may not require financial support as much.

Financial assistance may be more helpful when they have small children.

When planning the timing of inheritance, you should also think about taxes.

At this time, the gift tax exemption is high.

Most people will not need to worry about it unless they have an estate over $12 million.

Other taxes may affect your choices.

These include income taxes and capital gains taxes.

You could leave stock as an inheritance to your heirs.

If you sell your stock, you will likely owe 15 percent in capital gains taxes unless you are in one of the lowest two income brackets.

Those in these brackets do not owe this tax when selling stocks.

When leaving stock as an inheritance, it receives a stepped-up basis.

What does this mean?

Your heirs will not owe a tax on the capital gains accrued during your ownership of the stock.

As you prepare to distribute your wealth, work with an experienced estate planning attorney to ensure you are strategically meeting your current needs as well as your future goals.

Reference: Kiplinger (March 7, 2023) “Leaving an Inheritance? Is It Better to Give to Kids Now or Later?”

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