Have you heard of the term “living inheritance?” It’s our next topic in our weekly estate planning series. With the largest transfer of wealth set to take place over the next three decades, living inheritance is a term you’re likely to become more familiar with. An estimated $16 trillion across the globe is set to change hands from one generation to the next.
Baby boomers lucked out in a lot of ways compared the younger generation. Boomers for the most part have the benefit of stable employment, defined benefit pension plans and rising real estate values. Millennials on the other hand are dealing with a lackluster employment market, less than a third have the luxury of a workplace pension plan and many are struggling to keep up with the skyrocketing price of homeownership.
Why Consider Living Inheritance?
Baby boomers in a good financial position inheriting wealth from their parents are increasingly gifting that money to their adult children and grandchildren while they’re still alive. The main benefit of living inheritance is that you can see your kids enjoy your money while you’re still alive. Living inheritance can mean the difference between your kids buying a home in the suburbs and one nearby, so you can still spend quality time together.
Another compelling reason for living inheritance is that it helps your adult children at a time when they need it most. Paying for post-secondary education, buying a home and raising a family are all expensive. Living inheritance will help with those financial burdens. It makes sense from a time standpoint as well. Your adult children could use the money more now compared to when they’re in their 50’s and 60’s and financially stable.
Take Care of Yourself First
Thinking about “paying it forward” with living inheritance? First and foremost, make sure you’re financially set for your golden years. When you call it a career you’ll be on a fixed income. Will that be enough to cover the standard of living you want in retirement? If the answer is yes and you’ll have more money than you know what to do with (a good problem to have), that’s when living inheritance can make sense.
There are four main ways to structure living inheritance:
- Don’t gift everything to up front. See if your kids use the money responsibly. The last thing you want is for them to blow your life’s savings on a bad business deal or a Mercedes-Benz.
- Reimburse your children for major expenses like university and buying a home after they pay for it. Don’t tell them ahead of time. This teaches them the value of a dollar.
- Incentive Trust: As the name alludes to, an incentive trust gifts your child money for achieving certain milestones. For example, it could be for achieving high honours in university or volunteering in a worthy cause.
- Testamentary Trust: Your child will gets a payout when they reach a certain age. The most common age is between 30 and 40 when your children are more financially responsible.
Thinking of setting up an incentive or testamentary trust for your adult children? It’s best to seek out help from someone who’s experienced in estate planning. We have a team of experts who can help you navigate the sometimes complex waters of estate planning. Feel free to contact our office today.