Give the Dough before you Go

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Give the Dough before you Go

When I started writing this article, I was worried my parents might read this and think I cannot wait for them to kick the bucket and I am hoping for their money now.  Truth be told, I really hope they enjoy the money earned in their working years, in their retirement.

I am not here to convince you to give away (some of) your wealth during your lifetime.  I firmly believe people should not transfer wealth if they may need to rely on it during their lifetime or if they wish to enjoy their hard earned wealth during their retirement years.  If you have surplus wealth, you may have considered the possibility of distributing some of your wealth during your lifetime.

When might you consider wealth transfer during your lifetime?

1) There may be tax benefits for transitioning some types of wealth during your lifetime, especially if you are donating assets to a charity.

2) The wealth transfer may change the lives of those who receive it.  Wealth transfer at an earlier age may help a child purchase a home or start a business.  If your children inherit wealth in their 60’s, it is not as likely to change their lives.  They may enjoy your wealth in their retirement, or simply save it to pass along to their spouse and children.  If your child re-partners later in life, your wealth may go to someone you do not know (or like).

3) You might be curious what your children will do with the wealth.  Will they use it wisely or foolishly?  Maybe a small distribution of wealth now can be used like “training money” so children can learn how to handle wealth.  Evaluating your children on what they did with the wealth you provided them, which sometimes includes mistakes, may give you more insight into how you may transition wealth on death.  While there are many books on the subject, a book I recommend reading is “Preparing Heirs: Five Steps to a Succession Transition of Family Wealth and Values” by Roy Orville Williams and Vic Preisser.

4) If you own a business and a child is interested in taking over the business and become more involved.  Instead of holding onto the ownership and control of the business until you are no longer able, you may want to foster the business transition by the transfer of both some ownership and responsibility in the business to your child.

Gifts can come in many shapes and sizes.  A gift can be an outright gift, with no strings attached.  A gift can be an advance on inheritance.  By that I mean, wealth can be provided and in your Will you can say the amount transferred is to be deducted from the child’s inheritance.  Lawyers will use a “hotchpot” clause to treat the gift as a loan or advance, even where you do not have a legally binding loan agreement.  Alternatively you could confirm in your Will the gift is really a gift and not an advance.  If you own land, you could transfer the land at market value and take back a promissory note (an IOU).  The note could be forgiven on death, or not. If you own a business your lawyer and accountant can create an estate freeze, where you issue growth shares to your children.

I think a gift during your lifetime should be made thoughtfully.   Gifts of land or a share of a business may have legal and tax considerations.  If you are considering a large gift, I recommend you discuss the gift in consultation with your lawyer, accountant and financial planner.  I fully expect to be presented with this article, by my children, in the not to distant future.

Les Scholly
Les Scholly helps you navigate the turning points of life. He is a partner with Pritchard & Co. Law Firm, LLP and member of the Society of Trust and Estate Practitioners (STEP). Contact Les at 403-527-4411 or at