Optimize Your Money: The Maximum Value Date for Intended Inheritance

We work with clients every day who come in to create an estate plan. This often means drafting a  trust or a will.

Under the terms of a trust or a will, there is a distribution section. The distribution section controls how your estate (meaning your assets, real property, and money) is divided after you die.

During planning discussions with clients, significant time and energy is focused on the distribution terms because the client has invested their life energy into accumulation of wealth. Generally, the client wants their investments and wealth to benefit their surviving family.

Oftentimes, this results in clients distributing their estate to their surviving children. For a client with children, a simple distribution term may read something like this:

"On the death of the surviving settlor, remaining assets of the trust estate shall be distributed in equal shares to the surviving children of the settlors."

This means that after mom and dad pass away, all of their property is divided equally amongst the surviving children.

 But does this distribution scheme maximize the impact of your money? The short answer is no.

Under a distribution scheme like the example above, your children will not receive their intended inheritance until your death, meaning most children receive when they are approximately 55 years old. By that time, your children are at a stage of their life where the money will not be as impactful, or they cannot use it to optimize their life in the way they could have when they were 30 years old.

By 55, your children may have paid off their mortgage, built a career and have allocated their life energy to wealth accumulation for their own family. They may no longer have the energy to use the intended inheritance for life experiences, and no longer need it for life necessities.

In contrast, the intended inheritance can be distributed when it is at its maximum value date. For many people, the maximum value date is between the ages of 25 and 35. During the ages of 25 and 35, most people are building lives, careers, and families. They are buying homes, taking out mortgages, paying off student loans, and providing for their children. During this time multiple financial obligations are hitting simultaneously and creating financial stress.

There are multiple benefits to distributing the intended inheritance during these years. First, your children are mature enough to receive the gift and use it responsibly. Next, it will maximize your children's life through added financial security, reduction of financial stress and debt, and mitigate the impact of interest on their financial obligations, such as mortgages and student loans. This will put them in a better financial position for their future, and their children’s future.

This will also reduce the total value of your trust estate. While that may initially sound negative, reducing the total value of the trust estate may reduce tax consequences for your estate upon your death. As it relates to distribution of intended inheritance, the IRS allows each taxpayer to gift up to $17,000.00 to an individual recipient per year without paying gift tax in 2023. There is no limit on the number of recipients you can give a gift to, so you can distribute the intended inheritance equally amongst your children during the years it is at its maximum value to their life.

Overall, there are many considerations to distributing intended inheritance prior to your death.

Talk with our estate planning attorneys today to discuss how to maximize the impact of your money.