Don't Wait Until You're Gone: Why Retirees Are Giving Away Wealth Early
Baby boomers and the Silent Generation hold trillions in assets. Here is why financial experts say giving an early inheritance might be the smartest move you can make.
Older generations hold $124 trillion in assets they plan to pass on to loved ones and charity over the next two decades. Many will wait until they are gone to share the wealth, but some are opting to give while they live.
It makes sense. A new survey conducted by Morning Consult on behalf of Kiplinger found that, when asked what they would want an inheritance used for, both parents and adult children said practical things such as paying down debt, buying a home or securing a retirement.
"There's a recognition that the money would be more useful in their 40s and 50s than in their 60s and 70s," said David Blanchett, head of retirement research at Prudential. "But if you wait to give them that money, you won't get to see it in action. You won't know what impact it has."
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For retirees who plan to wait until they die to pass on their inheritance, fear of outliving their money can create paralysis. After all, people are living well into their 80s, which means their money needs to last longer. "There's always an element of what if I need it, I won't be able to take it back," says Michael Conrath, JPMorgan's chief retirement strategist. "Legacy and retirement are connected in terms of the math and in terms of the emotions."
To overcome the fear of running out of money, Conrath says to break retirement savings into three buckets — stable, variable and legacy. The stable bucket is for recurring bills such as rent, food, utilities and healthcare, while the variable bucket is for travel, hobbies, entertainment or other wants. The third bucket is for legacy, which is where the giving comes from.
"Once you have those two parts covered, it really gives people the freedom and the comfort knowing they have the capacity to gift money," said Conrath. "It's a way to remedy some of the fear."
Benefits of giving while you're living
"You don't have to do it all now, and you don't have to do it all later." — Pam Krueger
There are several reasons to favor giving while you're alive, for both the giver and the receiver.
Benefits for givers:
- They can reduce the total size of their taxable estate before passing away, minimizing potential state or federal estate taxes.
- They can gift up to $19,000 per recipient in 2026 (married couples may gift up to $38,000 to an individual) without triggering gift tax filings or dipping into their lifetime exemption.
- They may gift appreciated stock to a qualified charity or an heir, thereby avoiding capital gains tax on the stock's growth.
- They may pay medical or tuition bills directly to the institution (which bypasses the $19k limit entirely), or fund a 529 plan.
- They experience the immediate joy and satisfaction of supporting loved ones during key life milestones.
Benefits for heirs:
- They can use the funds immediately to improve their financial health.
- They don't have to pay taxes on it; the federal tax code doesn't treat gifts as taxable income for the recipient. (Appreciated stocks are the exception.)
- Direct gifts eliminate potential delays and legal complications associated with going through probate court after a donor passes away.
How to give while you live
If giving while living sounds like something you want to do but you aren't 100% on board, Blanchett says to test the waters with small gifts. You don't have to give your heirs their entire estate, but you could help your adult child with a down payment on a home or pay for daycare or college tuition for your grandchild.
It can be something as small as a cash gift or an extra deposit into the 529 account. Not only can you help them now when they need it, but you're also preparing them to manage the inheritance they will receive later.
Don't sacrifice your retirement
There is a lot of joy and satisfaction in giving while living, whether it's to your adult children, grandchildren or a beloved charity. Don't start writing checks willy-nilly, though. If you plan to rely on Medicaid, you could disqualify yourself by giving monetary gifts during the 5-year look-back period. Be certain you have a locked-down plan for how to pay for long-term care, as those costs have ballooned in recent years.
In other words, giving can't be at the expense of your retirement. As Pam Krueger, founder and CEO of Wealthramp, warns, you don't want to end up giving too much and being broke.
"The best answer for most people is you don't have to do it all now, and you don't have to do it all later," said Krueger. "Protect your own financial security first and foremost, and then say, 'OK, I can give this much now while I'm alive and this much when I'm dead.'"
Editor's note: Want more help making this decision? Take our quiz on giving while you live vs waiting until death.
We know this can be a contentious conversation. If you want to share your opinion, reach out to us at KipInheritanceTalk@futurenet.com.
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