How much money should you give away now?

Some people plan to give money to beneficiaries (typically children and/or charities) before they pass away, especially if they consider they have more than enough money i.e., surplus wealth. Often, their thesis is that their kids can make good use of the money now, whilst they are younger, rather than waiting another couple of decades. By that time, they’ll probably already be financially established. I discuss what you must consider before making an early inherence. Inheritance tsunamiI’ve stated before that the amount of inheritance (mainly from the baby boomer generation) that is likely to be passed on will increase fourfold over the next three decades. Approximately, $3.5 trillion will be bequeathed over the next decade to reach $224 billion per year by 2050! That’s huge. However, according to ANZ Private Bank’s research, approximately 70% of intergenerational wealth transfers fail because of family conflicts and other problems. The best way to avoid many of these problems is to gift wealth prior to death. Inheritances are often received too late in lifeTypically, by the time both parents have passed away, most people are already (financially) well established. They have worked hard to pay for the costs of raising a family, repaying a home loan, investing in super and other assets. Receiving an inherence will only make an already strong financial position, even stronger. Arguably, and putting aside that I think a bit of ‘financial struggle’ is beneficial and necessary, it would be more useful for people to receive inherences earlier in life. It would help them upgrade their home sooner (and maybe get into a good public-school zone) and invest sooner, thereby benefiting from compounding capital growth. It’s possible that future generations could continue to benefit from early inherence if your children agree to repeating the practice. That is; I’m going to give you an early inherence on the understanding that you will make smart financial decisions, which hopefully puts you in the position of being able to do the same for your children. Of course, nothing is guaranteed especially when gifting monies.Avoiding family disputesMost family disputes can be avoided with clear, regular and forthright communication. If all beneficiaries know what their entitlements will be (when you die), a dispute is less likely. However, the best way to avoid disputes is to gift monies whilst you are alive – as you can manage relationships and ensure people are treated fairly. This is a big advantage that results from making an early inherence.  What if they waste the money? Once you gift monies, you relinquish control over what the recipient does with them. Sometimes, donors worry that recipients may “waste” the money they receive on frivolous items.  However, in my decades of experience, I have found that recipients treat inherited monies often with more care, diligence and respect than they do their own money. I haven’t (yet) come across a situation where someone has “wasted” an early inherence. Admittedly, all my clients are responsible with money.   Of course, it makes sense to consider whether a recipient is likely to make smart financial decisions. If they have a long history of doing so, then it’s likely your gift will be in good hands. How to work out how much to gift and when The main risk with making an early inherence is that you give too much away and compromise your own ability to fund your retirement. The best way to mitigate that risk is to prepare financial projections and be conservative with your assumptions regarding (1) future investment returns and (2) how much you spend each year (living expenses). ForTo subscribe to Stuart's blog: https://www.prosolution.com.au/stay-connected/