The Heart, As Well As The Head, Plays Role In Estate Decisions

Good estate planning goes behind the numbers to take the individuals involved into account.
When it comes to giving gifts to family and loved ones through a will or while still alive, there are tax implications to be taken into consideration, but a host of other factors come into play, as well.
A recent article on the Motley Fool website dealt with the subject in some detail.

Money (Photo credit: 401(K) 2013)

Money (Photo credit: 401(K) 2013)

“You’re in your golden years, and you’re thinking hard about estate planning,” Paula Pant, a contributor to WiseAdvisor, wrote in the article. “You want to leave gifts for your heirs, but should you wait until you pass away? Or should you give some money to them now?
“Gift tax versus estate tax – gift tax is the tax imposed by the federal government on any transfer of property to an individual without any compensation in return. ‘Property’ in this sense includes both tangible property, like art or furniture, and intangible gifts like stocks and cash.”
Pant goes on to point out that currently the law allows a lifetime gift limit of $5.34 million, after which taxes of 40 percent are imposed. But there’s also the added complication of an annual exemption $14,000 to consider.
A good estate planner will help people make up their minds from a purely financial perspective which options are the best for taking care of heirs.
Exceptional estate planning will help clients come to grips with the pros and cons to either approach Pant points out in her Motley Fool contribution.
For giving heirs money now, these include:

  • You get to see them enjoy it. If you’d prefer to see your gifts in action, giving your heirs the money now gives you a chance to see the difference it makes in their lives.
  • You can advise how they spend it. If you’d prefer to see your gifts in action in a specific way, giving the money while you’re still alive gives you a chance to let your heirs know how you’d prefer they spend it.
  • You can give the gift in the form of paying for something. If you really want to ensure the money is spent on the thing you want it to be spent on, you can pay for something rather than giving your heirs the money for it.
  • You can stop giving them money if you see them falling off the rails.

The factors that weigh in favor of waiting until you pass away include:

  • You may need the money later. What if you find that you need the money to pay for your own expenses during your lifetime?
  • Your heirs might appreciate it more and spend it more wisely. By waiting until you’ve passed away, you give your heirs a chance to ‘make their own way in the world’ at a younger age. Rather than relying on an annual cash infusion from you, your heirs will be older and more responsible when they receive the inheritance. This might cause them to appreciate the gift more, as they will have experienced the task of earning money.

“Which should you choose?” Pant asks. “Should you give your heirs gifts now? Or wait? Ultimately, there’s no ‘right’ answer. This is a personal choice.”

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