Gain a new perspective on inheritance giving

May 17, 2019

If you are a parent, you are most likely counting the blessings of family as you celebrate(d) Mother’s Day and Father’s Day this May and June. If your children are grown, you may now be able to enjoy the pay-off of the hard work you have invested in raising them. After years of diligence to guide, discipline, and financially provide for them, you may be able to enjoy a glass of wine, share a duck hunt, or travel together at this season of your life.

While retirement provides a time to enjoy the many aspects of a life well lived, many parents are also making the decision of “giving while living” during retirement. By giving their children their inheritance or part of it now while alive, parents are able to watch it make an impact. For example, a grown child may choose to use the funds for a down payment on their first home, seed money for a new business, or savings for their own child’s college tuition. Money today may be of greater help in the children’s lives than after the parents are deceased. Additionally, an early inheritance invested today may benefit longer, if placed in a vehicle that utilizes compound interest.

If you are interested in gifting money to your children today, review your current living requirements to ensure you retain enough to live comfortably. Here are some additional key points in which to consider.

Ensure you do not outlive your income

Americans are living longer than ever with the average life expectancy of almost 79 years old; make sure you are leaving enough funds in your retirement savings to cover your living expenses for the long term. Ensure you factor in inflation and taxes into your future. Additionally, make sure your portfolio contains diversified investments to help maintain growth. Your financial advisor can assist with determining how much to give, and how to maintain the correct amount for retirement.

Make health care a priority

With longer life expectancies and rising health care costs, it’s important to plan for the cost of your health down the road. A typical patient hospital stay is five days and can cost over $10,000. While health insurance pays a portion, you still need to be mindful of co-insurance, deductibles, and other out-of-pocket costs. Additionally, Medicare only covers nursing home and assisted living care for a limited duration, and to qualify for Medicaid, you must spend all of your money first. If you make the decision to give your children money now, safeguard a portion of your retirement savings to cover any health care costs down the road. You may also consider purchasing long-term care insurance to help preserve your assets.

Many parents of grown children have seen the benefits of giving while living. However, each individual and family is different. If you are unsure if your child will responsibly use or invest the money now, consider setting up a trust for disbursements. Talk to your financial advisor about the best practices for setting up legacy planning and retirement and consult your attorney for matters involving trust and estate planning.

Marcellus Davis is a Financial Advisor with the Wealth Management Division of Morgan Stanley in Houston.