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By Patricia Fong, J.D., CTFA

Inheritance is a process that involves passing on material property from one generation to another, usually within the family and traditionally from older parents to their children. As trust officers and wealth advisors, we are often asked, “When is the best time to make a transfer to another generation?”

You as a potential donor must first assess your income needs to maintain your lifestyle for the rest of your life. If you find that you have excess, you may want to consider passing on some of your financial inheritance to your beneficiaries. The next question to deliberate is, “Does it makes sense to give to your children or beneficiaries during your lifetime or at death?”

Early transfers during a lifetime can be tax effective. In 2022, a donor can gift $16,000 as an annual exclusion per donee or recipient. Gifting assets to children or grandchildren during your lifetime allows the younger generation to appreciate your generosity. However, it is wise to help teach that generation to save and invest the hard-earned dollars you gift them. You may want the younger-aged child or grandchild to understand money and the accountability that comes with it. Financial education and discussion of wealth responsibility are critical to their wealth management growth.

Many donors want to make certain that their children have the chance to make it on their own first. So perhaps a trust is a better option. People often prefer to transfer the control of a portion of the inheritance at or around age 35 and then more at a later age of 45. Other aspects you may want to consider include the maturity of the child, their age, as well as their judgement shown at different stages in life.

We had a tragic situation where both parents died in a car accident leaving one child at the age of 16. There were no provisions from a trust to manage his assets or to provide for him. Because he was a minor, a guardianship was created and everything had to be approved by the court. When the child reached 18, the age of majority in Illinois, the court terminated the guardianship and turned the entire estate over to him. The total amount was approximately $600,000. Within 18 months, the assets were squandered through the purchases of four cars and an addiction to drugs. Sadly, the child’s inheritance was gone and nothing was left for a college education.

This is just one example of the importance to plan ahead. Whether you are contemplating passing on inherited assets or establishing a trust, now is the time to review your assets and your estate plan. I’ll close with a final question to ponder, “How do you want to leave your legacy?”