9 Smart Reasons to Give Your Kids an Early Inheritance
- - 9 Smart Reasons to Give Your Kids an Early Inheritance
Stacy GarrelsNovember 12, 2025 at 8:11 AM
0
When we think about inheritance, we often picture money, property, or other assets inherited after someone's death. We envision a family garbed in dark colors perched eagerly (but not too eagerly) in a lawyer's office as the will is read.
But it doesn't have to play out like this. What if giving your children an early inheritance now could benefit everyone involved, financially and emotionally?
There are nine smart reasons why giving your kids an inheritance now can help avoid wasting money and simplify your overall financial picture.
Make Money: 8 things to do if you're barely scraping by financially
1. Help loved ones
Your children may benefit far more from an inheritance in their 20s, 30s, or 40s rather than later in life. Whether it's paying off student debt, purchasing a home, or starting a business, an early inheritance can help them gain a financial foothold and build wealth sooner rather than later.
For instance, a young adult receiving $30,000 to buy a home could buy sooner and avoid taking out a high-interest mortgage.
This could save them tens of thousands of dollars in interest and private mortgage insurance payments, not to mention the added wealth of increased equity through earlier home ownership.
Who really has the cheapest auto insurance in your area? Check your zip code here.
2. Guide their use of the money
Leave your kids an inheritance in a will, and you will have no way to influence how they spend it from beyond the grave. But if you gift the money while you're still alive, you can help guide their financial decisions.
For example, you could set your child up with a financial planner to create a long-term wealth-building strategy.
3. Instill a legacy of giving
Selflessness is learned, not inherited. Passing down wealth also means instilling a sense of financial responsibility and generosity, not just gifting money in a free-for-all.
An early inheritance allows you to teach smart money habits, so your children learn how to invest, save, and donate their resources.
Avoid these money mistakes: 9 dumbest things smart people waste money on
4. Increased Social Security benefits
Gifting wealth early may help you qualify for higher Social Security benefits, as early gifting reduces your taxable income and overall assets. As benefits are based on total lifetime earnings, lowering your taxable income in later years may help you avoid higher tax brackets.
Need-based programs like Medicaid and Supplemental Security Income also have strict asset limits. Reducing countable assets, such as non-homestead property, a second vehicle, cash, or investments, may ensure program eligibility and your ability to support your kids.
5. Lifetime tax benefits
An early inheritance may bring tax breaks, especially if you take advantage of annual gift tax exclusions. In the United States, you can currently gift up to $19,000 per year per recipient tax-free, reducing the taxable portion of your estate.
6. Estate tax benefits
If your estate is subject to federal or state estate taxes, gifting assets now can reduce the heirs' tax liability later on.
With federal estate taxes reaching up to 40% and state estate taxes reaching up to 20%, minimizing the estate's value can significantly impact how much of your wealth you can pass down.
Dave Ramsey Urges Americans to Become Debt-Free: Try these 7 clever ways to crush your debt
7. Simplify the overall estate process
Probate, the legal process of proving the will and settling an estate, can be a lengthy and costly ordeal. Gifting assets early means you reduce the amount of heritable assets and the need for your estate to go through probate.
This simplifies things for your heirs, as it can save months (if not years) of legal work and thousands of dollars in court, attorney, and estate administrator fees.
8. Reduce the potential for family conflict
Nothing causes family feuds quite like money. Especially when it comes to an after-death inheritance, when siblings feel assets were distributed in a lopsided manner. If one party feels they were short-changed, it can cause resentment for generations to come.
If you give an early inheritance now, you can communicate your intentions while you're alive and reduce the risk of acrimonious legal battles down the road.
For example, you can explain why John gets the boat and $5,000 while David gets $25,000, and prevent your kids from speculating about who Mom and Dad loved best.
9. You can still give later
An early inheritance doesn't mean you have to give everything to your kids now. You can still provide them with money after your passing.
Increasingly, many parents are opting for a blended approach: They gift some assets now to help their kids and have the pleasure of seeing them succeed, and then reserve the rest for later distribution.
This helps ensure you have enough income to live on without running out of money. If your financial situation changes, you still have control over your remaining funds.
Grow Your $$: 9 things you must try when your savings reach $50,000
Bottom line
An early inheritance may be a win-win for both you and your children. It allows you to reduce estate tax liability and help your children get ahead financially.
However, gifting assets early isn't without risk. Medicaid's five-year look-back rule could impact eligibility for long-term care, poorly structured gifts can trigger surprise tax consequences, and there's no guarantee your children will use the money responsibly.
There are many considerations, so it's crucial to consult a financial planner or estate attorney to develop the best strategy that balances your generosity with long-term financial security.
More from FinanceBuzz:
Are you on track for retirement? Take this quiz and find out.
14 benefits seniors are entitled to but often forget to claim
$1,000,000 saved? Download this free guide to learn 7 ways to generate retirement income.
Source: “AOL Money”
