Few people get excited about doing estate planning, even though they might recognize the importance of leaving a legacy for their children and grandchildren. If you want to be smart about making gifts to your loved ones, though, there are some things you should consider before just writing a check.
When leaving a legacy to your heirs, you want to do it the right way. It’s always best to consult with the pros on important estate planning matters.
A recent article from The Motley Fool, titled “Thinking of Gifting an Inheritance to Your Grandchildren? Keep These 3 Things in Mind,” asks some of their experts for estate planning tips. Here are some of their answers:
Set up a Trust. Who wants to see the grandkids squandering their inheritance on something foolish? Many of the younger ones don’t have the appropriate financial skills to properly manage money. This makes the thought of handing over a large sum of cash or stock a queasy idea. A 2012 study showed that 23% of millennials spend more than they earn, so you have a reason to not feel well about your heirs and your money.
The article suggests that you instead set up a trust, a wise move if you're planning to pass along a substantial amount of money and want to avoid any chance of probate. You can control how and when a certain amount of money can be distributed to your grandchildren. That way they won’t be overwhelmed. This also gives your kin time to mature and develop their financial know-how. That way they can handle the inheritance when they receive the money later on.
Know about Estate Taxes. If you’re planning to leave an inheritance to your grandkids, the article says that you should remember the estate tax. This tax will be applicable if your total estate is valued at more than $5.43 million (for 2015). If this applies to you, you could start giving the grandkids money while you're still alive. The IRS allows a $14,000 tax-free gift each year per person, and that works for both you and your spouse ($28,000). Speak with an estate planning attorney to review your estate planning and estate tax situation. Some planning will go a long way toward helping you know that you money will be given to your heirs when they are ready and will anticipate any tax issues.
Reference: The Motley Fool (April 22, 2015)“Thinking of Gifting an Inheritance to Your Grandchildren? Keep These 3 Things in Mind”