Gifts to Adult Children in Your Estate Planning
When structuring gifts for your adult child within your estate planning, it is important to give careful consideration to the needs of your children. This will ensure that your assets meet your goals and are distributed in accordance with them. To help you get started, an Indianapolis attorney at Frank & Kraft discusses gifting to your adult children in your estate plan. To get you started, an Indianapolis lawyer at
Frank&Kraft
discusses the gifting of your adult children to your estate plan.
Start With Clear Goals
The initial step in structuring your gifts is to identify what your objectives are. To begin structuring gifts, you must first identify your goals. Fairness is another option, and it does not always mean an equal distribution. Fairness can be achieved by adjusting for special circumstances, such a child who has received a lot of financial support from you during your lifetime. Defining these priorities early will serve as the foundation for how you structure gifts in your estate plan.
Address Special Needs or Circumstances
If one of your children faces unique challenges, your estate plan should be tailored to address them. A child with special requirements may benefit from a Special Needs Trust. This type of trust allows them to receive financial support, without compromising their eligibility for government programs such as Medicaid and Supplemental Security Income (SSI). A spendthrift trust may be the best solution for a child who has trouble managing money or is addicted. Spendthrift provisions protect the funds from being misused or lost to creditors, providing both security and oversight. Spendthrift provisions protect the funds from being misused or lost to creditors, providing both security and oversight.
- Consider the Form of Your GiftsThere are various ways to structure gifts for your children, each with specific advantages and drawbacks. The right approach can have a big impact on how your gifts will be used and preserved. Common options include
- Outright Gifts: An outright distribution is the simplest form of gifting, where your children receive their inheritance directly upon your passing. While easy to implement, this approach may not be suitable for children with financial issues, creditor problems, or poor money management skills.
- Trusts: A trust provides flexibility and control over how and when your children receive their inheritance. You could, for example, create individual trusts for your children with terms tailored to each child’s circumstances or a shared trust with clear provisions on how funds are allocated. Trusts can protect assets from creditors, divorcing spouses, or financial mismanagement while allowing you to stagger distributions over time or set specific milestones for access.
Lifetime Gifts:
Gifting during your lifetime allows you to see the immediate benefits of your generosity. It can also reduce your taxable estate. However, it is essential to be aware of gift tax rules and annual exclusion limits, which cap the amount you can gift tax-free each year.
Striking the Balance Between Equality and Fairness
Equal distribution of assets is often seen as the most straightforward approach, but it is not always the most appropriate or fair. If, for example, one child has been your primary caregiver, or played a major role in the family business, it may be appropriate to give them a larger share. If a child already receives substantial financial support from you, it might make sense to adjust the inheritance to reflect this. It is important to communicate your intentions clearly in order to avoid misunderstandings. It is possible to do this by holding a family meeting and explaining your reasoning, or by including an explanation letter with your estate planning. Clear communication helps set expectations and minimizes the risk of disputes among your children.
Appoint Competent Fiduciaries
If you include trusts or conditional gifts in your estate plan, selecting the right fiduciaries is critical. A Trustee is responsible for managing assets and carrying out your trust’s terms. This person must have the financial knowledge, organizational skills and impartiality to effectively manage your children’s inheritance. For more information, join us at an upcoming FREE seminar. Contact an Indianapolis estate planning attorney by calling Frank & Kraft or (317) 684-500 for an appointment. Read More!
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