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Giving an Early Inheritance: Pros, Cons, and Ways to Do It Right

Are you considering leaving an early inheritance to your loved ones? In this blog, we will explore the benefits, drawbacks, and best practices for giving inheritance early to your heirs to ensure it’s done correctly.

Providing an early inheritance can be a meaningful way to support your loved ones during your lifetime. While there are many benefits to this estate planning strategy, careful planning and consideration are required to ensure it benefits everyone involved and aligns with your overall financial goals. So, let’s discuss a few pros and cons of this option.

Pros and Cons of Early Inheritance

Pros of Early Inheritance
There are several advantages to giving an inheritance early. It allows you to see your loved ones enjoy their inheritance. It can provide financial support when they need it most, such as buying a home, starting a business, or paying off debt. Additionally, it can reduce the size of your estate, potentially lowering estate taxes.

Cons of Early Inheritance
So, is there a downside to giving an early inheritance? One of the potential drawbacks is that it can impact your financial security, especially if you underestimate your future needs or healthcare costs. There’s also a risk of creating dependency or causing family conflicts if not handled transparently and equitably.

Three Things Before You Decide

As you decide whether to draw up paperwork for early inheritance, I want to share three things you should consider before making your decision.

#1 Evaluate Your Financial Stability
Before giving an early inheritance, evaluate your financial stability. You want to assess your financial health and ensure you have sufficient resources for your retirement, healthcare, and unforeseen expenses before determining a safe amount to gift.

#2 Seek Professional Advice
Estate planning impacts many aspects of your financial life. Seek professional advice from financial planners, tax advisors, and estate planning attorneys. Their expertise can help you navigate the complexities of early inheritance, ensuring that your decisions are financially sound and legally compliant.

#3 Talk with Your Family
Estate planning can be a sensitive subject even in the best families. So, transparent communication with your family is essential. Discuss your intentions, the reasons for early inheritance, and how it will impact your overall estate plan. Clear communication helps manage expectations and prevent misunderstandings.

Best Practices for Early Inheritance

If, after these reviews and discussions, you decide to move forward, here are some best practices for implementing early inheritance effectively.

Formalize Gifts with Legal Documents
Formalize your gifts with legal documents such as promissory notes or gift letters. This documentation provides clarity and ensures that your intentions are written, which can prevent future disputes and ensure compliance with tax regulations.

Use Trusts to Manage Distribution
Consider using trusts to manage the distribution of early inheritance. Trusts can provide structured payouts, protect assets from creditors, and ensure the inheritance is used according to your wishes. They offer flexibility and control over how and when the assets are distributed.

Balance Fairness and Equity
Strive to balance fairness and equity when giving an early inheritance. Equal does not always mean fair, and individual circumstances may warrant different levels of support. Consider the unique needs and situations of each family member when deciding on the amounts and timing of gifts.

Regularly Review Your Estate Plan
Regularly review and update your estate plan to reflect the early inheritance and any changes in your financial situation or family dynamics. Taking time to review your documents ensures your overall estate plan remains aligned with your goals and provides a comprehensive approach to wealth transfer.

Giving an early inheritance can be a rewarding way to support your loved ones, but it requires careful planning and consideration. By understanding the pros and cons, evaluating your financial stability, and implementing best practices, you can ensure that your early inheritance benefits both you and your recipients.

Thank you for reading our blog. Remember, we believe you can have a flexible life plan to achieve more of what you love: more financial confidence, more for your family, more freedom, and more choices.

Chris Zeches is a Certified Financial Planner® and Managing Partner at Zeches Wealth Management. Zeches Wealth Management has one singular focus: To use our financial planning and tax expertise to help multi-generational families and business owners achieve more of what they love.

Have A Question?

If you have questions that are specific to your family's situation, feel free to contact us and we will do what we can to help.