Adam Harding, a financial advisor from Tempe, Arizona, went viral after posting advice he gave to a 73-year-old client on X. The post has been viewed 10.7 million times and reposted more than 3,000 times.
This is a big question. According to Federal Reserve data, American baby boomers have $78.55 trillion in household wealth — a daunting amount to pass on to their heirs, even after factoring in legal fees and estate taxes. At the same time, inflation, a rising cost of living, and a national housing shortage are putting many Gen Xers and millennials in financial difficulty.
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When it comes to estate planning, knowing when to leave your inheritance to your children is just as important as knowing how much.
When is the right time to inherit?
Harding advised her 73-year-old client to think about her life 20 years from now — when she’s 93. Her children will be in their 60s, her grandchildren 33. By the time they inherit her fortune, “everyone has pretty much decided who they are and what they’re going to be,” he said.
“Now compare that to today’s gifts. Your child is at a stage where a financial gift can have an impact that changes the trajectory of their life. Think of the ripple effect of removing a little financial stress from the parents of a 13-year-old.”
If your children are facing financial difficulties and will eventually inherit your money, it may be wise to give them (at least some) now, but everyone’s situation is different, and there are pros and cons to each approach.
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The pros and cons of living heritage
As people reach their 30s and 40s, they tend to incur increasing expenses: getting married, having a baby, buying their first home, starting a business, saving for their children’s college education, etc. They also need to save for retirement. Add in the rising cost of living and it can cause financial stress.
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Using a living will to fast-track your children’s inheritance makes more sense when they are younger and need the money the most. It also means you can see your hard-earned money put to good use while you’re alive and reduces the stress of estate planning for your loved ones after you’ve passed away.
There are also tax benefits: taxpayers are allowed a lifetime basic exemption of $13.61 million (as of 2024) and an annual gift tax exemption of $18,000 (or $36,000 per married couple). Gifts over this amount automatically require a gift tax return to be filed, which counts against the lifetime exemption. If your estate exceeds this exemption, it may be worth giving away $18,000 per year now, so that your heirs don’t incur additional taxes after you pass away. However, this is a complex undertaking, and we recommend that you do so with the advice of a legal, tax, or financial advisor.
On the other hand, your heirs may spend your inheritance on things you didn’t intend, which could cause family disputes. For example, let’s say they use the money for a luxury vacation instead of a down payment on a house. If you’re worried about that, you could gift them the money through an annuity. That way, they receive regular, guaranteed payments instead of a lump sum. Or you could use a trust. A trust gives you more control over your money while you’re alive.
The advantages and disadvantages of inheritance
Harding’s 73-year-old client likely has another 20 or more years to live and wants to make sure his savings don’t run out. Longevity is a legitimate concern — after all, you don’t want to write your kids a big check in retirement only to be unable to pay for unexpected medical expenses 20 years later. You want to budget for your retirement and manage your savings wisely, and a trusted advisor could help.
Estate planning is complicated, too. Giving assets away now can get even more complicated, especially if you have multiple children. For example, let’s say one of your children owns a home and the other can’t buy a home. Should you give the child who can’t buy a home a down payment and the other a lump sum? Or should you just ensure that child receives more assets in your will? The answer isn’t always clear.
If you want to leave a legacy early, you need to calculate how much you can give away now to ensure a fulfilling retirement.
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This article is for informational purposes only, should not be construed as advice, and is provided without warranty of any kind.
