The Risks of Giving Adult Children an “Advance” on Their Inheritance

There are many reasons you might consider giving your adult children a portion of their inheritance now, while you’re alive and well. Maybe you’ve seen your nest egg grow thanks to a robust stock market, and you have more in savings than you thought you would at this stage of your life. Perhaps you and your spouse enjoy excellent health and have received nothing but good checkups for years, so you’re not overly concerned about medical expenses. Or maybe just want to be there to experience how your financial assistance helps your children pursue their dreams and achieve their goals.

While many parents would like to help their adult children financially as much as possible, before acting on your generous inclinations you should consider several potential problems.

For instance, what if one of your children could use some help right now, perhaps with paying off student loans or starting a business, while your other children don’t need any help? If you give one child money, are you required to give the same amount to each of your children, regardless of need? Your other children may very well think so. Do you really want to set the stage for the family drama that could unfold by violating the “fairness principle?”

Of course, you could tell the recipient of your gift, along with your other adult children, that the gift will be deducted from the recipient’s inheritance when you pass away. This might solve the problem, but then again, it might not. As you’ve no doubt learned by now, your “kids” may be grown up but that doesn’t mean sibling rivalries and other powerful emotions from childhood simply disappear.

Another factor to consider, particularly with respect to large gifts, is whether your children are mature enough to handle a sizable amount of money on their own. It’s one thing to watch your children make sound financial decisions and achieve success because of your generosity, but quite another to watch them squander the money you worked so hard to attain and preserve. If your children use your gift in ways, you never intended, will you resent it? Will they resent you for having “strings attached” to the gift?

Finally, while you and your spouse might be healthy now, people are living longer than ever before. Many of us will require long-term care at some point in our lives. Long-term care is already expensive, and costs are expected to increase significantly in the future. Even basic services are expensive: According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need approximately $300,000 saved (after taxes) to cover health care costs in retirement.

We never really know what the future holds. Change is the essence of life, and your situation could change dramatically in the years ahead, hopefully for the better but maybe for the worse. The last thing you and your spouse want is to discover five, ten, or twenty years down the road that you no longer have the money to support yourselves, let alone afford the lifestyle you have now.

What you do with your money is your business, of course. Just think long and hard before giving your adult children a significant financial gift. As always, we are here to help.