Wealthy families got a holiday gift on Jan. 1, when Congress agreed on permanent estate-tax rules that are much more generous than many financial planners had expected. Some aren't celebrating, however. Instead, they are grappling with new questions about how best to set up trusts for their heirs—while keeping a measure of control over their wealth.
Sometimes there really can be too much of a good thing. Oftentimes, however, you have to be in the right position to see it. For example, many parents have come to believe that $10.5 million is just way too much of a good thing to leave as inheritance to their children.
None other than the venerable Wall Street Journal explored this subject in an article appropriately titled “Can You Trust Your Kid With $5.25 Million?”
As you likely are well aware by now, the recently enacted American Taxpayer Relief Act of 2012 (ATRA) sets the unified estate and gift tax exemption at $5.25 million per taxpayer (with a nearly “automatic” $10.5 million per married couple). Using certain estate planning “tools” (e.g., to make “discounted” wealth transfers) you can do a great deal better than that, too.
So, what do you think about leaving a large inheritance to your progeny? By default in most jurisdictions, your children would inherit their inheritance outright without any restrictions, guidance or protection at age 18 (or immediately if already older than age 18). If that is not enough motivation to make proper estate plans now, then little may do the trick.
Proper estate planning means providing the legal means to both protect the inheritance “for” and “from” your descendants. Have you ever noticed that some children “grow up” and others just “get older”? Accordingly, your planning should reflect the unique needs of each of your children. While you are at it, perhaps you might want to make provisions directly for your grandchildren. Many grandparents say had they known how much fun grandchildren are, they would have had them first!
Bottom line: only you can decide “how much is enough” when it comes to the financial legacy you leave downstream to your loved ones. Only you can make the arrangements to help ensure such inheritance is a blessing and not a curse. Also, remember to leave an inheritance to your favorite charity or charities, as well.
Reference: The Wall Street Journal (January 18, 2013) “Can You Trust Your Kid With $5.25 Million?”
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