As you create your online Estate Plan, you will have to make difficult decisions about what assets to leave to your children, including how much money you want to give them. Although it may be tempting to put off this discussion until a later date, it will be important to start considering it now. You cannot predict the future or how much time you have left, making it a wise decision to create an Estate Plan now before you no longer have the chance.
Planning in advance affords you more control over the amount of money your children will receive and when they will receive it, and it may be important to you that your children only receive parts of their inheritance at certain milestones. It is also important to consider different tax laws and decide how that will impact your decision on how much money to leave your children.
Creating a plan for how much to leave your children is beneficial because it can help to avoid unnecessary probate costs, which would then decrease the amount of inheritance your children will one day receive. By planning ahead, you can ensure your children get the amount of money you want them to receive.
Deciding how much inheritance to leave your children can be a challenging question to answer. Trust & Will, a leader in affordable online Estate Planning services, recognizes this and wants to help you make the best decision. Keep reading to learn how to decide the amount of money that you want to leave your children in your Estate Plan.
Factors That Influence Inheritance Amount
The two main factors to consider are tax laws and contingencies and how these may influence your Estate Plan.
In the United States, there are limits to how much money you can give to one person in a year and still be tax free, regardless of if you are alive or if you are leaving the money within a Will. The amount that can be tax free is $15,000. Beyond this point your children will be required to pay a gift tax on the amount, significantly decreasing the amount of money they will receive. There is also a gift amount limit for the course of your lifetime, but it is much harder to exceed this limit as it is set at $11.58 million by the IRS. However, there are ways around gift taxes.
Spread out the amount given
One way to help avoid gift taxes on inheritance if you want to leave your children more than $15,000 is to spread it out over time. It is common today that people have begun to give out part of their children’s inheritance to them while they are still alive. By doing this, you can give your children the desired amount of money you had in mind while avoiding unnecessary taxes.
Consider a Roth IRA
Another way to get around gift taxes is through a Roth IRA, which is a form of individual retirement account. All money that is put into your Roth IRA over the course of your lifetime will be tax free once taken out. When you leave a Roth IRA to your children in your Will, they will be given 5 years to empty the account upon your death. Roth IRA accounts do not count towards the gift tax limit, meaning they will be able to inherit all money within the Roth IRA tax free, thus giving you another option to increase the amount of money you leave your children.
When deciding on the amount of money you want to leave your children as inheritance, it is important to consider whether or not you want to set up any contingencies for receiving the money. With a contingency, you are deciding that your child should receive part or all of their inheritance only once they reach a certain milestone in life. For example, you can stipulate that they must first graduate college, start a family, receive a full-time job, etc.
To set up contingencies, people often put inheritance money in a Trust. Once the money is within a Trust and the contingencies are stated, they will receive the money once the contingency is met, regardless of whether you are still living or not. There are both pros and cons to setting up contingencies.
By setting up contingencies, you can guarantee that the money you want your children to receive is given to them in a certain time frame, regardless of whether you are present. For example, if you were to pass away when your child is still rather young, you may not want them to receive their full inheritance yet. With a contingency, you can ensure they receive the money on your desired schedule.
With contingencies, you are also able to spread out inheritance over a larger period of time, as you will have the ability to set aside parts of their inheritance for certain milestones. This can also give incentive for your children to reach certain goals over the course of their lifetime.
While it can be a great incentive to put contingencies on money you leave to your children, it can also have complications. For example, you may want your children to receive a bachelor’s degree and thus put a contingency on this to receive inheritance. However, they may end up developing a condition that prevents them from completing the degree, such as a disability. Alternatively, they may find they want to go to trade school instead. In these instances, this contingency would not be beneficial for your child and may instead be a hindrance. It is important to clearly think over the contingencies you set out and if they are right for your child and the amount of money you want to leave them.
Deciding how much money to leave your children can be a complicated decision, with factors such as money and contingencies to consider. Trust & Will wants to help simplify the process by making the creation of your Estate Plan documents easier. With Trust & Will’s online Estate Planning services, you can create your Will and Trust-Based Estate Plan all from the comfort of your own home and at an affordable price. Visit our website today to begin planning!