Probate: Is it a good idea to give your heirs their inheritance while you are still alive?

Planning an estate can be a difficult process, but also a rewarding one because it helps to ensure that a person’s heirs will be provided for after he or she dies. Many assume they should wait until after death to convey assets to their loved ones, but there are some benefits to giving assets to an heir while still alive.

There are two types of taxes to consider when determining when to give an heir your assets. A decedent who gives his or her assets to someone while still alive may have to pay a gift tax. This is a tax imposed by the federal government on any transfer of property. Property includes intangible items such as cash and stocks, as well as physical items such as vehicles or furniture.

The most important aspect of gift tax to understand is the unified gift and estate tax credit, which allows a person to give property tax free up to $5.34 million throughout his or her life.

According to current tax law, a person is allowed to give a tax-free gift worth up to $14,000 per recipient each year. This $14,000 is not counted against the lifetime exception. Any amount given to one recipient over $14,000 would count against this total. So this means if a person is given $18,000, then $4,000 would be deducted from the lifetime total and reported with a federal gift tax return.

When a person dies, an estate tax is imposed by the federal govern on the decedent’s estate after the property transfers to his or her heirs. This tax is calculated by the decedent’s “gross estate,” which includes all of his or her assets such as real estate, cash, and business interests. The net amount of these calculations are then added to any taxable gifts given by the decedent with a value large enough to deduct from the decedent’s unified credit.

These laws mean that giving heirs some inheritance now can actually be a good way of avoiding higher estate taxes. However, this is only beneficial to the gift giver if he or she avoids the gift tax by giving something with a value less than $14,000 per heir. If the gift giver is married, and gives the gift jointly with his or spouse, this gift will avoid the tax if its value is under $28,000.

There are other advantages to giving gifts while alive, which includes the benefit of seeing the heir actually enjoy the gift. This allows the gift giver to also advise the heir on how to use the gift. If the heir misuses the property against the decedent’s wishes, he or she can stop giving that person money and adjust the will accordingly.

There are also some good reasons to hold off on giving an heir their inheritance early. The biggest reason is the decedent may need that property or money while they are still alive. The financial climate can change between now and when the estate owner dies. A person who gives too many assets away may find they now need them in order to survive. A final reason to wait to give assets until after death is it allows the heirs to grow and mature first before receiving the gifts. This can ensure the inheritance is both more appreciated and used more wisely.

For more information on estate planning, contact Florida estate planning and probate attorney David Goldman at (904) 685-1200.