Why Lifetime Gifting Should Be Central To Your Estate Plan

Right now, the lifetime exemption for gifts and estates is the highest it has ever been—$11.58 million for individuals or a $23.16 million joint exemption for married people. But this number isn’t permanent and could change. That’s why financial advisors are saying it’s a smart idea to put vehicles in place, like trusts, to enable seamless lifetime gifting.

“Some people are waiting to do things based on how things land, politically, but that could leave them scrambling if things were to change,” said Rebecca Duguid, a senior vice president and client advisor at Whittier Trust. “The earlier you get the process started, the better.”

Having vehicles in place now can give you the maximum flexibility in terms of gifting to kids and grandkids — and can also help your children and grandkids learn how to be wise stewards of your wealth. That’s because, while “trust fund kid” has become a cliché, having access to a trust fund can help people in their twenties and thirties manage money effectively, especially when working in tandem with a financial or trust advisor.

Giving yourself time and space to answer these questions now and setting up effective trust vehicles for the future can also allow you the time to watch your children or grandkids enjoy and safeguard your wealth. “We want to pass our wealth down to the next generation, and hope they’ll do the same,” said Duguid. Here are some things to consider when you begin gifting to the next generation.

Ensure Your Heirs Have What They Need

One “easy” way to divide wealth is to create what is called a pot trust. In this scenario, Duguid explained, the money is in one trust, with equal access given to children to request distributions. A trustee will be named, and then, a distribution will be made if the trustee agrees to a request. Distributions can have provisions, such as health, maintenance, support, or education expenses. While this trust may seem “simple,” Duguid said that it could create fractures in families.

“Different children will have different needs, so family dynamics can be much easier to manage when you create separate trusts,” said Duguid.

It’s also smart to consider how you want the trust dispersed—and what makes the most sense for the family’s needs. “Every client does it differently, giving money to children at different ages. You have to consider at what ages your children are going to be able to manage and be good stewards of the wealth you are passing down,” said Duguid.

This type of trust can be a helpful way to guide adult children through milestones such as real estate purchases, marriage, and children’s educations—without running the risk that they will “blow through” the trust. There may also be trust setups that accommodate your legacy wishes, such as establishing a dynasty trust that can be accessed by heirs long after the lifetime of your original beneficiaries.