Berman & Asbel, LLP

Options for gifting children in estate planning

Pennsylvania parents might want to gift part of their estate to their children while they are still alive. However, there are some pitfalls they should be aware of. For example, cash or stock that is only minimally appreciated is a better gift than an asset that is highly appreciated because of future capital gains tax. Highly appreciated assets are best passed on after an individual's death.

Parents might want to help their children buy a home by including themselves on the mortgage. However, that can result in a depletion of the gift tax exemption. People who have unstable employment may rely on their parents to pay mortgage and taxes. Problems may arise with jointly owned accounts as well. A better idea is to name the child power of attorney on the accounts, gift the child the cash while still alive or name the child a beneficiary on the account.

Naming a minor child as beneficiary means an adult would be appointed to oversee the money, but this still means the child might be irresponsible with the money if they receive it at 18. In another scenario, the spouse of an adult child in a bad marriage might have access to the funds. A trust can protect against either of these situations.

Estate planning can be a complex process when taxes, the potential for gift exemptions, and the need to control how assets are spent come into play. Individuals might want to talk to an attorney about their situation and the different solutions that might be available. For example, a trust can specify that assets only be distributed after a person has reached a certain age or milestone or that they can only be used for a certain purpose such as education or buying a home.

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