As people across the nation gear up to see trillions of dollars exchange hands through family inheritances, planning is key.
If your children inherit money from their grandparents before they’re adults or you want to prepare them for a future family inheritance, there are important steps to take. Above all, be honest and transparent about the situation. Prepare them for their future earnings.
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Here are four additional tips for how to help you leave gifts to your children or grandchildren.
1. For large sums, consider using a trust. The last thing you want to do is have your hard-earned money go to a minor who isn’t responsible with their finances. By using a trust, you can create stipulations for the money like that it has to be used for college. You can also set it up that there are multiple payouts, commonly at 25, 35 and 45 years old.
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2. Instill financial literacy from an early age. Being honest with your children or grandchildren about what they will inherit and what the circumstances will be is key. By preparing them, they will be ready to spend the money and will likely spend it more responsibly. If you know your children will inherit eventually, start teaching them how to budget and manage money from an early age like with an allowance.
3. Convey where the assets came from. Whether it’s cash or a family summer home, it’s important to explain how the money was earned and the history of the gift to its recipient before they get it. It will help them respect the gift and avoid spending it frivolously.
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4. Watch them enjoy it. Instead of giving a post-mortem gift, you can give gifts up to $14,000 per person each year, or $28,000 to an individual yearly if you are married without paying taxes. That way, you can enjoy watching your children or grandchildren spend the money and you can also help give your advice on what would be good to use it on. You can also avoid taxes by paying for an unlimited amount of someone else’s education and medical bills if you pay the institution directly.
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