Protecting Your Family: Planning an Inheritance

Should you give a part of your estate while still living?

Death is an uncomfortable topic — and a deeply personal one. That can make seeking advice and implementing a plan for leaving an inheritance a challenge for some. While it may be difficult, it’s wise to have a plan in place.

“We have experienced situations where a business owner dies suddenly with no funding or legal mechanism in place to allow a loved one to retain, buy, or sell the business. This is just one reason it’s important to have the proper planning in place,” says Dan Bryan, Senior Vice President, and Area Business Manager for Regions Private Wealth Management.

People have choices when it comes to leaving an inheritance: give a portion of it to the heirs now or wait until after death. Regardless of timing, the taxpayer can give up to the exclusion amount, which is over $11 million per person.

Giving During Your Lifetime

The general rule is that any gift (such as giving a portion of an inheritance) is taxable, although there are certain exceptions to this rule. One exception is gifts that are less than the annual exclusion determined by the IRS for the calendar year. Gifts equal to or less than this amount are not taxable gifts. This means that they do not count toward the estate tax exclusion amount. Taxpayers can give gifts under the annual exclusion to any number of individuals each year without affecting their estate tax exclusion. Married taxpayers can elect to gift split, which allows the couple acting together to give up to twice the annual exclusion, although they must file Form 709 if gift splitting.

Some families prefer to gift money during their lifetimes to satisfy immediate financial needs, rather than waiting to disburse the money as part of an inheritance.

“Some of our clients want to set up trust funds and educational plans for their grandchildren, so they can support their education,” Bryan says, adding that in some cases the gift is made straight to the college or university for tuition.

Comparable transfers can be made to health care facilities and providers for medical expenses. Transfers directly to an educational institution for tuition or to a medical provider for medical care of an individual do not count either toward the annual exclusion or the estate tax exclusion.

Developing and Updating Your Estate Plan

While you may think the time to develop your will and estate plan is at the end of your career, financial planners suggest planning much earlier.

In your 20s and 30s, you should create a will, even if you have few assets. Once you marry and have children, wills become more important because they specify who you want to appoint as guardians for your kids.

Wealth accumulation typically increases during your 30s, 40s and 50s, and there may be financial needs related to a child’s education, home buying, or even helping a child start a business.

By the time you are in your 60s and 70s, you should be refining your estate plan. Revisit your plan every few years to ensure that it still reflects your wishes and circumstances.

Leaving Inheritances Differently for Different Reasons

“It’s hard to say if there is a right way or a wrong way to handle inheritance,” Bryan says. For example, “Some couples who own businesses say they are not interested in leaving it to a family member, and they think about selling the business after retirement.”

Other families might consider leaving it to their children to keep the business in the family. Your legal advisor can help you plan the transfer of your business to the next generation.

“It can be troublesome when there is no estate plan and no plans for business succession,” Bryan says. “Consider having a team of people who can help you with private wealth management, investment services, insurance reviews, and estate planning.”

“No one wants to think of their demise because it’s not a happy topic,” Bryan says. “But just because you don’t want to think about death, doesn’t mean you shouldn’t plan.”

Learn more about retirement planning.