Gifting money with legacy gifts

Planning for your child’s financial future involves a number of key decisions. Your plans can range from saving money for education to creating smart investment plans to making sure they're covered by life insurance in case something happens to you unexpectedly.

Understanding what's involved in planned monetary gifts can help you determine if this is a type of inheritance you want to leave your family.

What is a legacy gift?

Legacy gifting, also known as planned giving, can take different forms. Usually it refers to leaving money to a nonprofit or charity in the event of your death. But it's also a way of providing your children a gift of money or property. 

From legal and tax perspectives, it doesn't make much difference when you give your children money. You can do this while you're still alive, or it can become part of your estate plan. One of the primary reasons for waiting to gift money or property to family members is to make sure you don't leave yourself without funds later in life or become a financial responsibility of the heirs you're trying to help.1

Tax implications when gifting money

Gifting money involves estate and tax planning. Careful planning can minimize the impact of the estate taxes levied on your assets upon your death before they're distributed to your heirs.2

The federal government assesses an estate tax for assets that exceed $5.49 million in value.3 In addition to that, six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — levy an inheritance tax, which takes a percentage of the amount of money or property left to the individual. Fourteen states and the District of Columbia also charge a state estate tax.4 The amount of assets that invoke the estate tax vary from $1 million to $5.49 million, so it’s important to know what laws affect you and the way your money will be disbursed. 

It’s also important to note who pays the cost of those taxes. While an estate tax is paid by your estate, the burden of inheritance taxes falls upon the person receiving the gift of money or property.  

Today’s tax codes and laws make it simpler to make gifts of money to children or other family members, regardless of whether you do it now or after your death. Some of the bigger issues that you should not overlook in the planning process are the effect your choices will have on your family’s interactions and what impact you want them to have. 

For example, if one of your intended heirs has a large amount of debt, that person could be at risk of losing the inherited money to creditors. You should objectively assess the situation and make decisions with help from a professional. This can provide the peace of mind that you're doing the right thing for your money and your family. 

Set up a legacy by gifting property within a family

Because there are many questions, implications and tax rules involved in creating a legacy gift, it’s important to work with an experienced professional. That person might suggest you set up a trust that allows you to pass on property and other assets without going through probate - the legal process of proving your will is valid, which can become expensive and time-consuming.5

Any donation of money or property requires careful consideration, and legacy gifting property to children is no exception. Among the questions you’ll want to review with a financial expert are how much you're able to give, how the donations should be divided and when the donation should be made. 

Whichever kind of legacy planning you're interested in, it's important to assess your finances and meet with a financial planner to review your options. Doing so can make planning your future simpler and ensure that your family is taken care of.

[1]  "Why Make Your Heirs Wait?”, Merrill Lynch Corporation (downloaded Aug. 15, 2017).

[2]  "What is Planned Giving?,”, PlannedGiving.Com (downloaded Aug. 15, 2017).

[3]  "Which states have estate and inheritance taxes?,”, USA Today (July 15, 2017).

[4]  "State Inheritance Tax Chart,”, The (March 5, 2017).

[5]  "5 critical questions before leaving an inheritance,”, Bankrate (downloaded Aug. 16, 2017).

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