If you’re fortunate enough to have wealth and want to share it with your children, you don’t have to wait until you’re gone to start giving it away.
Wills, estates, and inheritances tend to be the most common methods of transferring wealth between generations, but there are many other ways to pass along money to sons and daughters. Cash gifts, stocks, properties, and trusts are some of the options parents are using more frequently to help provide for their children.
While there’s nothing wrong with relying on a will to sort out your assets, the growing popularity of other methods speaks to the enjoyment many parents take in watching their children (and grandchildren) benefit from transferred wealth in their lifetime, whether it’s to buy a home, pursue education, or any number of reasons.
Giving wealth away while you’re still alive requires some careful planning, because you obviously need to make sure you’ll have enough left over to take care of yourself. However, there are other benefits, too, including the ability to sort out potentially tricky inheritance issues (i.e., deciding who wants/who can afford vacation properties or other assets), and may also lead to tax benefits both for you and the recipients.
Eager to start sharing financial gifts with your loved ones? Here’s a closer look at some of the ways you can pass wealth on to your children.
Cash gifts
Whether you chose to hand over a large lump sum, or arrange for either monthly or annual transfers, there’s no simpler solution to wealth transfer than giving cash to your kids.
Perhaps not surprisingly, given the combination of high prices and rising interest rates, lump sum cash gifts are often given to help a child get their first foothold in the housing market, or to trade up for a bigger home to accommodate a growing family.
Cash can be given without the giver or the recipient having to pay tax on the value of the gift, no matter how sizable it may be. Giving away cash also reduces the size of your own estate, meaning there’ll be less of a tax bill to pay upon your passing.
Trusts
When you give cash away, you don’t always have the final say on how and when that money gets spent. In order to keep a little more control of the assets you’re sharing, one option is to set up a trust.
A trust lets the person transferring wealth establish clear conditions for its disbursement and use. For instance, a trust document might establish that a child will only have access to funds at a certain age, or to put towards a specific use like buying a home or funding higher education.
Homes and properties can also be transferred through trusts, as can stocks and shares, and family valuables and other heirlooms. Trusts also offer the benefit of allowing beneficiaries to utilize capital gains tax exemptions on transferred assets, creating the possibility of significant tax savings for those inheriting property or assets.
Life insurance
Buying a life insurance policy offers another tax-free way to transfer wealth to younger generations, because policy benefits are paid in full without any tax burden for the beneficiaries.
Some parents use life insurance policies to help their children offset the tax implications of other inherited assets. For example, a beneficiary could use the payments from a life insurance policy to cover the cost of capital gains tax or increased property tax fees when inheriting a vacation property from his or her parents.
Property or property investments
Homes and vacation properties such as cottages often provoke strong emotions among family members. If your intent is to help keep a beloved property within the family by passing it down as a gift or inheritance, it’s wise to consult with your kids first so you can determine their willingness to assume ownership and responsibility of a property.
As tempting as it may be to keep hold of the house your kids grew up in or the summer home your family enjoyed for decades, those inheriting the property often face practical issues related to the cost of ongoing maintenance and property taxes. In some families, the matter of trying to split something equally between siblings is a struggle.
Of course, transferring wealth doesn’t have to come from gifting a property with sentimental ties. Another option is to invest in real estate, whether through the purchase of a rental property or a real estate-based security, and pass this asset down when the time is right. Physical property is an attractively versatile asset for anyone inheriting it: property tends to go up in value over time and can be used as a place to live, a place to generate income through rental, or as an asset to sell.
