Have you thought about the timing and tax issues of when your children will receive their inheritance from you?
Financial experts are saying that due to steadily rising life expectancies, many of us will live into our 80s and 90s, and your kids are likely to be in their 60s or 70s before receiving their inheritances.
Would you like to pass along some assets before they reach this age?
Fortunately, you don’t have to die to be able to give them portions of their inheritance.
Consider these suggestions for some tax-advantaged strategies for passing along assets while you’re alive:
- Talk with your children about starting education savings for each of their kids. Many states offer savings plans that grow tax-free. Some of these plans even allow kids to use their education dollars at a university in another state.
- The sooner in your grandkids’ lives you set up the education accounts, the more money those accounts will accumulate because they’ll have a longer period of growth.
- In the event you wish to give the money directly to a university, you don’t have to pay a single bit of taxes to do it.
- Give your kids “gift” dollars each year. Whether it’s for their birthdays, Christmas, or May Day, you can give each of your children up to $14,000 yearly (as of 2013) tax-free. In fact, you can give up to that amount to as many people (related or not) as you like without you or them being taxed on that money.
- Consider how your children in their 30s could use the money when they’re working so hard to raise young families.
- Can you imagine the joy, pleasure, and perhaps stress-relief you can give to each of your kids by making some generous gifts now, without anyone paying any taxes on the gifts?
- Pay for expected medical costs. If you have children or grand-children that will always need a special type of medical care, give some money to the medical facility. This way, you’ll avoid having to pay any taxes on the money you give, no matter how large the amount.
- Use your life insurance cash value. You can borrow money, tax-free, against your life insurance cash value and give it to your children. The government doesn’t tax those borrowed funds, regardless of the amount you take out of your policy.
- Your kids will also receive the funds tax-free as long as each gift is below the IRS limits ($14,000 in 2013).
- As long as your policy stays in force, those funds remain tax-free to you. You don’t need to ever pay them back if you don’t want to. Upon your death, your heirs don’t have to pay those dollars back to the life insurance company, either. The policy will cover the loans.
- Keep in mind, though, that the loans will reduce the death benefit to your beneficiaries. So taking out the loans is giving your children some funds now instead of later.
When you give now to your heirs, you’ll also reduce your overall assets that may be taxed upon your death.
Everybody wins:
- You get to see the looks on their faces when you gift a large amount of money.
- Your heirs get to use the money now, when they might really need it.
- Your heirs will pay fewer taxes and retain more of the assets upon your death.
Surprise your children by gifting some of their inheritance tax-free now, when you can all enjoy the special time together!