Many parents would love to allow their children and other descendants to get a good head start in life, especially after they’re gone. If you decide to transfer your wealth to your children, you must have a plan. It might surprise you that 60% of parents don’t have such plans in place. If you’ve been thinking about this topic lately but don’t know where to start, this post will help answer the question of how to transfer your wealth to your children. Here are three suggestions to consider.
1. Cash lump sums
Cash remains one of the most popular ways of transferring wealth, usually because it doesn’t take up a lot of time and can be helpful in emergencies. Maybe you would like to send your child some money to put a downpayment toward their first home. There are various ways to give cash to your children, including a lump sum.
You could give monthly or yearly lump sums, which will cushion your children and give you some control over how you want to distribute the wealth. The best thing about giving cash is that you’re exempt from paying taxes.
You also benefit from seeing your children use that money to pursue their dreams. It can drastically reduce the size of your estate too and the amount of tax to pay after you’re no longer here.
2. Trusts as a way to transfer wealth to your children
Trusts are also another common and excellent method of transferring wealth. They also offer protection and control.
Many parents prefer to give their children access to their trust funds at various stages. Trusts are also recommended if the beneficiaries are in vulnerable situations or disabled.
There are many factors to consider when opening a trust for your child. For example, one of the things you must consider is whether you need a tax ID number.
But before getting one, it’s necessary to understand the type of trust fund you plan to set up. You will need a tax ID number for irrevocable trusts, which involves permanently transferring your chosen wealth and assets, effectively absolving yourself as the owner. It helps to research how to get a federal tax ID number for a trust before you start.
3. Sell your home to your children
Another way to transfer wealth to your kids is by selling your home to them. However, they must sell at a competitive rate, especially to avoid any tax implications.
This process is a great way for empty nesters to downsize and use the proceeds to buy a much smaller home. Alternatively, you may decide to go for a life estate, which allows you to live on the property until you pass away. In this case, you will still be legally recognized as the owner and have to continue making mortgage payments and other repairs.
Concluding words on transferring wealth to your kids
When transferring your wealth to your kids, there are several things to remember. The suggestions above are intended to provide a good starting point. From there, it is best to speak with a professional to determine the right method for you and to better understand the entire process.