Can I Give My Kids Their Inheritance Before I Die?

At Richard L. Vanderslice, P.C., we often meet with clients who wonder if they should give their children their inheritance before they pass on. The answer is a nuanced one.  

Dealing with Pennsylvania's inheritance laws can be difficult. But our experienced business law and estate planning attorney is here to help. We provide compassionate and knowledgeable guidance to residents of Philadelphia and the surrounding areas, including Philadelphia County, Montgomery County, and Delaware County.

We strive to understand your case thoroughly so you can make informed decisions about passing on your legacy.  

The Concept of Living Inheritance

Living inheritance, also referred to as gifting assets while still alive, is a growing trend among parents. This approach allows parents to see their children benefit from their assets. You may want to help with college tuition, a down payment on a house, or even just offer a financial cushion.  

The beauty of living inheritance is that it gives you the pleasure of seeing your children thrive using resources you have worked hard to accumulate. However, you should balance your present needs with your desire to help your children. 

While giving away inheritance during your lifetime is appealing, it involves careful planning. Unlike traditional inheritance, where assets are distributed after death, living inheritance requires careful consideration of tax implications and future financial needs.  

Why Should You Consider Giving Inheritance Before Death?

The primary advantage of a living inheritance is to witness the joy and benefits that your gifts bring to your loved ones. By providing financial support when your children need it most, you can significantly enhance their quality of life. Unlike posthumous inheritance, which may come too late for certain milestones, early gifting aligns with your children's immediate goals and aspirations. 

Another reason parents choose this route is the potential tax benefits. Depending on your jurisdiction and the type of assets you're gifting, you might reduce estate taxes. This ensures that more of your wealth goes directly to your children. Gifting can be an effective way to manage your estate and lower the taxable value of your estate at death, possibly reducing the tax burden on your heirs. 

However, be mindful of the long-term impact on your finances. Gifting assets now might inadvertently affect your ability to provide for unforeseen expenses, such as medical costs. It is important to balance generosity and self-care so your living inheritance plan is sustainable. 

Inheritance Laws in Pennsylvania

Estate planning laws in Pennsylvania can be complicated and must be considered when planning a living inheritance.  

1. Inheritance tax rates: Pennsylvania imposes an inheritance tax on most assets transferred from a deceased person to their heirs. The tax rate varies depending on the beneficiary's relationship to the decedent. For instance, transfers to a surviving spouse or a parent from a child aged 21 or younger are entirely exempt, while transfers to direct descendants and lineal heirs are taxed at 4.5%. 

2. Estate exemptions: Some assets are exempt from the state's inheritance tax. For example, life insurance proceeds paid to a named beneficiary and certain joint bank accounts where the surviving owner had a right of survivorship are generally exempt.  

3. Probate: In Pennsylvania, estate assets typically go through the probate process unless they are jointly owned or have designated beneficiaries. The probate process can be complicated and requires the appointment of a personal representative to manage the estate's affairs, pay debts, and distribute assets under court supervision. 

4. Intestate succession: If an individual dies without a valid will, Pennsylvania's intestate laws determine how their assets will be distributed. Based on fixed legal guidelines, the state prioritizes distribution to the closest relatives, including surviving spouses, children, and other blood relatives.  

5. Gift tax implications: Although Pennsylvania does not impose a gift tax, federal gift tax rules may apply. When planning a living inheritance, you should know the annual gift tax exclusion limits and lifetime exemption amounts set by the IRS.  

Considering Tax Implications

When contemplating giving your children their inheritance early, consider the tax implications. Federal gift tax rules allow you to give away a certain amount annually without incurring taxes. Anything beyond the annual exclusion may count against your lifetime exemption. This requires careful planning to avoid unexpected tax consequences. 

Also, while Pennsylvania does not impose a gift tax, federal rules still apply. Keeping track of your gifts and staying within the annual exclusion limit keeps your lifetime exemption intact.  

Estate Planning Attorney Serving Philadelphia, Pennsylvania

At Richard L. Vanderslice, P.C., we offer tailored legal advice and support to Pennsylvania residents in Philadelphia and the surrounding areas, including Philadelphia County, Montgomery County, and Delaware County. We can help you understand the details involved in inheritances. Call us to manage risks and secure your children's future.