Why You Should Give Financial Gifts Before You Die

I know, talking about death is taboo. But unfortunately, it comes for us all and we should plan wisely for it.

Traditionally wealth is passed from generation to generation at the time of death. While receiving wealth this way is better than not receiving it at all, it’s less impactful than receving it sooner.

This all hit me after reading the book Die With Zero, by Bill Perkins. I'll admit....dying with zero is a bit extreme and probably impossible to execute precisely. I can't help but feel there must be a better way than each generation starting from scratch—new home, new job, new car, new nest egg.

How much easier would life be if we had a little boost of both funds and wisdom earlier on in life? We all want our kids to be money smart, but studies show that most parents don't talk to their kids about money. I believe that giving to our kids sooner than later allows us to share wisdom and resources at the same time.

I'm going to refer to heirs as kids in the remainder of this post. "Kids" in this case are likely to be in their 20s, 30s and/or 40s in this context. Also, they don't have to be your kids. This could be your favorite non-profit or other relatives you care deeply for.

Do We Really Owe Our Kids Anything

What would the nay sayers say?

"Kids have to learn for themselves"

We do learn more from experiences, good or bad. I suggest we combine the gift giving of wealth with experience. When you taught your kids how to ride a bike, you didn't simply expect them to find their own bike and do it all on their own right? You acquired a bike for them and you helped them figure it out. In the same way, we can give to our kids in a manner that allows them to use it responsibly.

"No one ever helped me"

While this could be true, I don't find it helpful. My parents tried to help, but they lacked resources themselves. I'm fortunate to have found two key things in my adult life—a job that provides beyond my needs and the financial wisdom to avoid debt while saving and investing wisely. There's no reason not to lead our kids to those things sooner than later.

"Kids are entitled these days"

I do think it's possible to spoil our kids. Remember, we want to educate our kids along the way. It's probably best to start small as well.

"Don't throw good money after bad"

This can actually be a valid point. Going back to the bike analogy, if the financial maturity of your child is on the lower side, maybe do this with training wheels (not a lot of money).

Most People Inherit Money Too Late

Statistially heirs of wealth are 60+ years old. At this point I would imagine anyone serious about their financial stability would be ready for retirement—or at least very close. And honestly, if they're not ready, the wealth they're about to inherit is likely to be consumed very quickly.

The money would have been put to much better use in the earlier stages of building wealth. Things like paying for education, purchasing a home, paying for transportation and raising kids are serious costs that can really slow down wealth building and financial stability.

Gradual Financial Support

Many estate planning experts recommend structured inheritances that gradually disperse money. Why? The same reason many parents want their kid's first car to be slow and safe. They need experience, but with some limitations to keep them safe.

Studies of lottery winners (not significantly different than a large inheritance) show that most people lose their winnings within a few years if they receive them as a lump sum. Those who take the winnings over time are far more protected from themselves.

Slowly dispersing money also allows you to coach your kids along the way. I think there are a lot of good rules for spending and saving money. One is to spend half on things you want or need and to spend the other half on saving/investing. Giving money gradually gives your kids the ability to practice this principle without breaking the bank. Personally I wasn't really able to implment this until I was around 35 years old. I can only imagine how beneficial it would have been if I started when I was 20.

Think of your wealth as a business. If you owned any other business, you wouldn't simply hand the keys over to your kids one day and say, "have at it". You would teach them the ins and outs of the business and gradually hand over responsibilities until they master the whole thing. Heck, they may even outperform you!

Giving Is More Enjoyable When You See The Benefits

Giving can actually strengthen relationships. Giving is after all a love language. By giving to our kids, we show them they are loved and supported.

Our own happiness is also boosted by giving. Doesn't it make much more sense to enjoy giving to our kids instead of waiting until our death when we can't experience anything?

Avoid Wealth Hoarding

Accumulating wealth beyond what you need can be a sign of a scarcity mindset. I sometimes think that a scarcity mindset can be really beneficial. It's probably one of the major reasons that I value fiancial freedom. Simply put, I am very familiar with financial struggles and I want to avoid it. At some point a scarcity mindset can become a hinderance.

Money is not just math, it's behavior and feelings. If you mathematically have more money than your ‘enough’ but still don’t feel secure, having more won’t solve it. You're far better off addressing those feelings than endlessly chasing more of it.

Tax Benefits

What's a blog about money without talking about taxes? Currently the IRS allows a yearly $19,000 tax free gift per receipient. That means you can freely gift $19k per year to anyone without them paying any tax on it. What's even better, you can give an additional $19k per receipient when you're married. That's a total of $38,000!

We talked about this being a good time to share wisdom, not just wealth. If you have a good sized nest egg in a taxable brokerage account, you can actually gift your shares intead of cash. This means you will not be subject to any of the capital gains from giving those shares away and the money is already invested.

What If I Retired With Just Enough

This is a valid argument, especially if you're an early retiree or if you weren't able to save enough by retirement age.

If you're an early retiree you have hopefully built your portfolio with very little expectation from Social Security. But if Social Security happens to be beneficial later, you may have more funds to give at that point.

Whether you're an early retiree or not, your greatest gift isn't money—it's time. There is plenty we can do with our time to help our kids along as well.

Conclusion

If you plan on leaving a large nest egg to your kids, I hope you consider giving more gifts along the way as well.