Old Man Showing His Last Will to His Children

Can I Give My Kids Their Inheritance Before I Die? 

The Elder & Disability Law Firm, APC June 13, 2023

A will or living trust will designate beneficiaries to your estate once you pass on. A will must go through probate proceedings, which at minimum generally takes months, while a living trust mostly bypasses probate except in cases of challenges. Either way, your loved ones will generally have to wait until you’re gone to gain your assets.  

But do they? Is it possible to begin the inheritance process before you pass? The Internal Revenue Service (IRS) has a say in what you do if you surpass certain asset numbers. The IRS considers any transfer of property to another as a gift. Money, property, land, vehicles, even art or jewelry collections – almost anything of value – will be considered a gift.  

The personal value of gifting an inheritance before you’re gone can bring smiles and satisfaction as you watch your loved ones enjoy their inheritance, which you obviously cannot do by utilizing the traditional will or living trust route. But it can also cause problems that you don’t anticipate.  

If you’re located in or around Redlands, California, and wish to bring an inheritance program to benefit your loved ones while you’re still around to enjoy it, contact The Elder & Disability Law Firm, APC. The firm’s estate planning attorney will meet with you to analyze the situation, goals, and dreams and advise you on the best path forward. The firm also serves clients in all neighboring communities, including Rancho Cucamonga, Riverside, and Palm Springs, California. 

Understanding Early Inheritance

California has no estate and inheritance taxes when assets are distributed upon one’s passing through a will or trust. The federal government does have an estate tax, but it doesn’t take effect until assets exceed $12,920,000 in 2023. The amount rises each year until December 31, 2025, when, under current law, it will be automatically halved unless Congress moves to extend the program.   

In 2023, the IRS also allows gifts in value of up to $17,000 without tax penalties. This figure is also adjusted each year, and in 2022 stood at $16,000 before inflation kicked in for this year. As an example, over two decades – using the current exemption – you could gift $340,000 to any individual without tax penalties. Again, the IRS considers many transfers to be gifts.  

The tax code also allows unlimited exclusions for paying educational and medical expenses for your loved ones. If you establish a trust, it may be possible to provide cash or other benefits – within IRS limits or not – while your beneficiaries and you are both alive, but you will need to consult with a professional estate planning attorney to get things right and protect both you and your loved one.   

It may also be possible to put someone on the deed to your home as a co-tenant so that the property passes directly outside of probate, but again, this delays the transfer until your passing. In addition, this opens your property up to liens and other legal actions if your new co-tenant runs into debt problems or files for bankruptcy. 

Advantages and Disadvantages of Early Inheritance: Key Considerations

One of the great advantages is watching your loved ones enjoy what you give them. However, on the flip side of the joy of helping others, there’s the danger that you may give away too much either too soon or too late. If later in life, for instance, you need financial help in arranging for nursing home care, Medicare and private insurance will prove of little use to you.   

You must then rely on Medi-Cal, and Medi-Cal has a five-year lookback period to see what you’ve done with your assets. Assets gifted during that period can be counted as current assets, potentially freezing you out of the program, which has an asset threshold to qualify.   

The bottom line is that any early inheritance/gifting you do be fashioned for the benefit of all, and for that, you definitely need the counsel and guidance of an experienced estate planning attorney

Get Hands-On Legal Help

The Elder & Disability Law Firm, APC, does not just serve the elderly, but those of all ages who are seeking comprehensive estate planning. If you’re in or around Redlands, California, you can rely on the experience and knowledge of the estate planning team. They will review your needs and goals and guide you along the proper legal path to fulfill your wishes for your loved ones. Reach out today