Pros and Cons of Gifting Now or Waiting for Inheritance?
The transfer of wealth from parent to child is a significant consideration for many families. Parents have difficult decisions to make. Often they have to decide whether to gift their children their inheritance now or do they wait for inheritance. In this article, we’ll talk about the pros and cons of gifting vs inheritance. Our specific focus on how these choices affect the ability to buy a home.
Advantages of Gifting vs Inheritance While Alive
- Immediate Financial Help:
- If you give your children assets or money while you are still living, they can get help with money right away. This can be especially helpful if they are having trouble with money, like when they are trying to buy their first home
- Ensuring Proper Use: Gifting whilst alive allows you to ensure that the inheritance is used as you intended, such as for purchasing real estate, or invest in education.
- Gift Duty: In New Zealand, generally there is no gift duty if the gift was given after 1 October 2021.
- Supporting Life Milestones: When you give your children assets, you can help them with important events in their lives, like paying for their schooling, helping them start a business, or paying for their wedding
- Reducing the Chance of Future Inheritance Disputes: Gifting can make it less likely that your heirs will fight over your inheritance after you die, because your goals and distribution are clear during your life.
- Immediate Satisfaction: Your kids get to enjoy getting their fortune while you’re still around to see all of their successes and milestones. You will be able to enjoy this with them.
- Flexibility in estate planning: Gifting provides flexibility in estate planning, by letting you give away assets in a way that considers your children’s individual needs and financial situations
Disadvantages of Gifting vs Inheritance Now
- Financial Security: Giving up a sizable chunk of your wealth could have an adverse effect on your own financial stability, particularly if you need those resources for retirement or unanticipated bills
- Changing Tax Implications: Sometimes laws change and you don’t know what the future holds
- Effect on Government Assistance: Giving your children a sizable asset may affect their eligibility for certain government assistance programmes, like First Home Grant
- Overseas Gift Tax Considerations: If your children are overseas, depending on the value of the gift, there may be gift tax duty or obligations.
- Financial Insecurity: Making too many gifts too soon can put your finances in danger and jeopardise your ability to pay for your own retirement or medical requirements.
- Unequal Distribution: Gifting children inequitably can be viewed as favouritism, therefore causing family disputes and conflicts
Benefits of Delaying Inheritance
- Potential Growth: Over time, assets like real estate can increase in value. Waiting to inherit can allow your children to benefit from potential future growth of your assets
- Simplified Estate preparation: Delaying estate preparation can make it easier because there may be fewer transactions involved. Makes estate planning easier and eliminates the necessity for intricate, perhaps complicated, financial transactions while you are still alive
- Asset Retention and Control: By keeping your assets, you can keep control of them and use them as you see fit for the rest of your life.
- Creating a Legacy: You have more time to increase your wealth and leave your children a larger legacy, perhaps supporting future generations
- Creditor Protection: Assets kept in your estate may be better shielded from the legal actions or creditors of your children
Disadvantages of Delaying Inheritance
- Missed possibilities: Postponing the inheritance transfer may prevent your children from taking advantage of possibilities to use the assets for things like real estate purchases, financing their own investments, or personal financial development
- Timing Uncertainty: Because life is unpredictable, delaying the legacy transfer may cause your children to receive their inheritance after they may actually need it.
- Diminishing Worth: There may be important occurrences that diminish the value of the inheritance before your passing. These unforeseen events could lower the total amount of the inheritance your children receive. This in itself, is a whole different conversation and the discussion’s more emotive aspect
- Possibilities for Family Conflict: Delayed inheritance can occasionally result in misunderstandings or conflicts among heirs regarding the division of assets and your objectives.
- Uncertainty: Because life is unpredictable, waiting to inherit means your children might not receive the assets when they need them the most. This can be challenging watching them struggling through life financially
We all want what is best for our children, and want to help out as we are able. Gifting vs Inheritance is no easy decision. To give your inheritance to your loved ones while you’re still alive has important financial and emotional ramifications. Consider your own financial stability, tax ramifications, and the short- and long-term financial needs of your children.
The best option will depend on your particular family dynamics and financial condition. Both methods offer benefits and drawbacks. Seek advice from financial advisers and estate planning experts to help you making informed decisions. Chat with your children about it. There is therefore no simple or ideal response.
Speak with your mortgage broker about further available options to help your child purchase a home.