The Potential Pitfalls of “Advancing” an Inheritance to Adult Children

At one time or another many parents entertain the notion of giving money “early” to adult children… in effect, “making an advance” on their children’s inheritance. While this seems like a generous and noble gesture, it may not be such a great idea. Here’s why.

Let’s say one of your children could use some extra money right now but your other children don’t need any help. If you give one child money, will your other children resent it? Siblings have a remarkable ability to uncover, and never forget, large gifts made to a brother or sister. Do you really want to set the stage for a family drama? You also need to consider whether or not your adult children are mature enough to make sound financial decisions after receiving a substantial gift.

I don’t mean to be a downer, but while your retirement account or home value may have increased recently, these things have a way of fluctuating. So, too, does your health and the potential need for expensive long-term care. Can you really afford to give your money away now? The last thing you want to discover down the road is that you no longer have the money to support yourself.

What About Adding Your Adult Children’s Names to Your Home’s Title?
Some elders consider putting their adult children’s names on the deed to their home. In many cases, the intent is to avoid the delays and costs of probate. If you are considering this idea, I have one word of advice.

Don’t.

Such a move could backfire in a number of ways, from limiting your ability to take advantage of planning strategies such as reverse mortgages, to making your children responsible for paying taxes on the increased value of the home when they inherit it, to exposing your home to your children’s creditors or divorces.

Instead, a properly designed trust will streamline the distribution of estate assets to your loved ones and avoid the delays of probate.

As always, I’m here to answer your questions and devise planning strategies to meet your family’s current and future needs.

Until next time, take care…